1. Section 24.2 Inventory Control
Marketing Essentials
n Chapter 24 Stock Handling and Inventory Control
Section Inventory Control

2. Inventory Control SECTION 24.2 The concept of inventory management
What You'll Learn
The concept of inventory management
Different types of inventory systems
Unit and dollar control of inventory
How to calculate stock turnover
The concept of stock management of basic, model stock, and never-out lists
The impact of technology on inventory systems

3. Inventory Control SECTION 24.2
Why It's Important
The inventory a business owns represents money tied up in products until the inventory is sold. Since inventory is a large part of the total investment of a business, well-managed and controlled inventories increase the profits of a business.

4. Inventory Control SECTION 24.2 inventory unit control
Key Terms
inventory
inventory management
just-in-time inventory system
perpetual inventory system
physical inventory system
tickler control
dollar control
unit control
stockkeeping unit
stock turnover
basic stock list
model stock list
never-out list
real-time inventory system

5. Inventory Control SECTION 24.2 Inventory Management
Inventory refers to an amount of goods stored, including raw materials, purchased components, manufactured sub assemblies, works in process, packaging materials, and finished goods.
Inventory management is the process of buying and storing products for sale while controlling costs for ordering, shipping, handling, and storage.
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6. Inventory Control SECTION 24.2 Inventory Management
A just-in-time inventory system is an arrangement in which suppliers deliver parts and raw materials just before they are needed for production. Plants keep only small stocks on hand to avoid tying up money and inventory space.
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7. Inventory Control SECTION 24.2 Inventory Systems
All merchandise bought and sold must be tracked to gain the information needed for effective inventory management. Two methods of tracking inventory are:
the perpetual inventory system
the physical inventory system

8. Inventory Control SECTION 24.2 Perpetual Inventory System
A perpetual inventory system tracks the number of items in inventory on a constant basis, as sales occur. There are two strategies:
Manual Systems Employees gather paper records of sales and enter the information into the inventory system.
Computer Based Systems A point-of-sale terminal automatically feeds sales transaction data directly into a computer.

9. Inventory Control SECTION 24.2 Physical Inventory System
Under a physical inventory system, stock is visually inspected or actually counted to determine the quantity on hand.
Visual Control Used to monitor physical inventory levels. Stock cards specify the number of each item to be kept on hand.
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10. Inventory Control SECTION 24.2 Physical Inventory System
Tickler Control A small portion of the inventory is physically counted each day so that the entire inventory is accounted for on a regular basis.
Annual Inventory Count Inventory is physically counted once a year. Most businesses do this.
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11. Inventory Control SECTION 24.2 Using Both Systems
Many businesses use both inventory systems.
The perpetual system gives an up-to-date inventory record throughout the year.
The physical system gives an accurate count that can be compared to the perpetual records to identify errors or problems.

12. Inventory Control SECTION 24.2 Stock Control
Stock control involves monitoring stock levels and investments in stock so that a business is run efficiently. Planning and monitoring stock levels requires the use of several different systems:
dollar vs. unit control methods
stock turnover calculations
three stock lists (model, basic, and never-out)

13. Inventory Control SECTION 24.2 Dollar vs. Unit Control
Dollar control represents the planning and monitoring of the total inventory investment that a business makes. This information helps a business determine its net profit.
Unit control refers to the quantities of merchandise that a business handles. This information helps a business make better merchandising decisions.
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14. Inventory Control SECTION 24.2 Dollar vs. Unit Control
In a unit control inventory system, each item or group of related items is referred to as a stockkeeping unit (sku). Tracking the skus shows which items (including which sizes and colors) are successful and which are not selling. This system also helps show when a product needs to be ordered.
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15. Inventory Control SECTION 24.2 Stock Turnover
Stock turnover is the number of times the average inventory has been sold and replaced in a given period of time. High turnover rates mean higher profit for the business because its money is not tied up in inventory.
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16. Inventory Control SECTION 24.2 Stock Turnover
Stock turnover rate is computed as follows:
Net sales (in retail dollars) Average inventory on hand (in retail dollars)
When only cost information is available, calculate stock turnover this way:
Cost of goods sold Average inventory on hand (at cost)
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17. Inventory Control SECTION 24.2 Stock Lists
There are three plans used to monitor different kinds of stock. They are:
basic stock list—for staple items
model stock list—for fashion items
never-out list—for very popular items
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18. October Sales November Sales December Sales
SECTION 24.2
Inventory Control
Basic Stock List
October Sales November Sales December Sales
Stock
Packing Units
Min. Stock
This Year
Last Year
This Year
Last Year
This Year
Last Year
Description
Size
Cost
Retail
Skippy Peanut Butter
1381
32 oz. 24 4
1382
Skippy Peanut Butter
18 oz. 24 8
Skippy Peanut Butter
1383
12 oz. 24 8
Jif Peanut Butter
1384
32 oz. 24 4
Jif Peanut Butter
1385
18 oz. 24 8
Jif Peanut Butter
1386
12 oz. 24 8
Buyers use basic stock lists to plan purchases and keep track of items that should always be in stock. Where on this list is the stockkeeping unit (sku)? If you ran a retail store, what kind of items would be on your basic stock list?
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19. Short-sleeve Oversize
SECTION 24.2
Inventory Control
Model Stock List
PRODUCT CLASS ____________________________________________________ SEASON ____________________________
Misses Sportswear
Spring
General
Styles
Specific Styles
Price Range
Color
Total Units
Size 6
Size 8
Size 10
Size 12
Size 14
Blouse
Sleeveless Tailored
$25
White 12 1 3 3 3 2
Black 12 1 3 3 3 2
Blue 12 1 3 3 3 2
Blouse
Short-sleeve Oversize
$35
Pink 24 2 6 6 5 4
Orange 24 2 6 6 5 4
Buyers use model stock lists for fashion merchandise. How and why does this type of list differ from a basic stock list in form and content? Why would it be more difficult to maintain accurate model stock lists than basic stock lists?
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20. Inventory Control SECTION 24.2 Stock Lists
A never-out list is used for best-selling products that make up a large percentage of sales volume.
Example: A video rental store will keep a popular movie on the never-out list and keep a large quantity of it in the store. Later, more popular titles will replace it.
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21. Inventory Control SECTION 24.2 The Impact of Technology on
Inventory Management
Technology is quickly changing the way stock is handled and controlled. In particular, retailers use:
UPCs to capture sku-level information at the point of sale.
Standard electronic data interchange (EDI) transactions for electronic B2B communication.
Standardized shipping container marking (SCM) to quickly identify cases and their contents.

22. Reviewing Key Terms and Concepts
ASSESSMENT
24.2
Reviewing Key Terms and Concepts
1. What is inventory management and why is it important?
2. Explain the concept of just-in-time inventory.
3. Name the two different types of inventory systems used for inventory management.
4. What is the difference between dollar control and unit control as they relate to inventory management?
5. What is stock turnover?

23. ASSESSMENT Thinking Critically 24.2
Do you think a just-in-time inventory control system could be used in a retail or wholesale operation? Why or why not?

24. Graphic Organizer 24.2 Inventory Systems Perpetual Inventory System
Tracks inventory on a constant basis, giving an up-to-date record throughout the year.
Physical Inventory System
Stock is visually inspected or counted to determine actual inventory.
Business can use
both systems, comparing physical
records to perpetual
records to
identify problems.
Manual
System
Computer
Based
System
Visual Control
Tickler Control
Annual Inventory

25. Marketing Essentials
End of Section 24.2