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NIOS Class 10 Warehouse Principles & Inventory Management Chapter 18 Inventory Management Techniques
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Inventory Management Techniques
Chapter: 18
Intext Questions 18.1
(i) _______________ is a technique of controlling, storing, and keeping track of your inventory items.
(a) Inventory management.
(b) Supply chain management.
(c) Controlling.
(d) Inventory level.
Ans: (a) Inventory management.
(ii) Inventory management will improve as your relationship with your suppliers improves.
(a) Hire a manager of inventory control.
(b) Purchase inventory management software.
(c) Collaborate with vendors.
(d) Keep track of product delivery times.
Ans: (c) Collaborate with vendors.
Intext Questions 18.2
(i) A corporation employed to develop and finish items are known as __________.
(a) Component.
(b) Packaging Materials.
(c) Raw Materials.
(d) Service Inventory.
Ans: (d) Service Inventory.
(ii) Raw materials or components, labour, overhead, and even packing materials are all examples of……
(a) Finished Goods.
(b) Decoupling Inventory.
(c) WIP inventory.
(d) Cycle Inventory.
Ans: (c) WIP inventory.
Intext Questions 18.3
(i) The company only stores as much inventory as it needs during the manufacturing process and it saves money on storage and insurance by not having excess inventory on hand.
(a) Just-in-time (JIT) inventory.
(b) ABC inventory analysis.
(c) Economic Order Quantity.
(d) Minimum Safety Stocks.
Ans: (a) Just-in-time (JIT) inventory.
(ii) Which method is mostly used by businesses to keep track of inventory spare parts?
(a) Just-in-time (JIT) inventory.
(b) ABC inventory analysis.
(c) VED analysis.
(d) Minimum Safety Stocks.
Ans: (c) VED analysis.
Intext Questions 18.4
(i) The use of digital technologies to reduce operating expenses is known as _________.
(a) Artificial intelligence.
(b) Machine learning.
(c) None of the above.
(d) Supply chain automation.
Ans: (d) Supply chain automation.
(ii) ____________ Streamlines the tasks required to properly maintain inventory, manage reordering, and update accounting data by automating components of inventory and warehouse management.
(a) Inventory management software.
(b) Inventory tracking.
(c) Accounting integration.
(d) Reordering.
Ans: (a) Inventory management software.
Intext Questions 18.5
(i) ________ automatically updates the inventory management system when a product is scanned or checked out in an online cart, accounting for the transaction in real time.
(a) Automated reordering.
(b) Product cost analysis.
(c) Forecasting.
(d) Point of sale integration.
Ans: (d) Point of sale integration.
(ii) _____ is the go-to inventory management software and ERP platform for large businesses and enterprise-level corporations.
(a) Syspro.
(b) RFID capabilities.
(c) SAP.
(d) Automated reordering.
Ans: (c) SAP.
| Terminal Exercise |
1. What is the inventory management process?
Ans: The inventory management process is how an entity handles or manages its inventory from one process to another while reducing intermediate expenses. Inventory management is a critical component of supply chain management and is at the heart of every business’ trading operation. It is an essential method for monitoring, managing, and controlling your company’s stock goods. It is not an exaggeration to say that it is the hub of all trade activity within a firm, from the acquisition of non-capital assets through the creation of items, stock management, and shipment of finished goods to clients, resellers, and distributors.
2. Explain the benefits of the inventory management process.
Ans: The benefits of the inventory management process are as follows:
(i) Reduction in Cost: All inventory items’ reorder levels are altered by an efficient technique. This ensures that none of the inventory products are out of stock, preventing any procedure from being hampered and maximising storage capacity.
(ii) Importance of Inventory Items: An inventory management method will always display the company’s rapid and slow moving stocks and how each inventory item contributes to its performance. A corporation can boost or decrease production/sales based on this data.
(iii) Streamline in Process: A simplified procedure benefits a company in a variety of ways. There are fewer doubts among employees. It will take less time to teach new members about the procedure.
3. Explain the flowchart. For inventory management process.
Ans: The inventory management process flow chart includes demand forecasting, order placement, receiving and inspection, inventory tracking, stock storage and organisation, order fulfilment, and inventory analysis.
4. Define the types of inventories.
Ans: Raw materials, semi-finished goods, and finished goods are the three main categories of inventory that are accounted for in a company’s financial accounts. There are other types as well which are maintained as a precautionary measure or for some other specific purpose.
5. Describe the inventory management technique.
Ans: The inventory management technique are discussed below:
(i) Setting up various stock: levels To avoid overstocking and understocking of materials, the management has to decide about the maximum level, minimum level, reorder level, danger level and average level of materials to be kept in the store.
(ii) Preparation of Inventory Budgets: Organisations having huge material requirements normally prepare purchase budgets. The purchase budget should be prepared well in advance. The production and consumable material budget and capital and maintenance material should be separately prepared. Sales budgets generally provide the basis for preparation of production plans. Therefore, the first step in the preparation of a purchase budget is establishing a sales budget.
(iii) Maintaining Perpetual Inventory System: This is another technique to exercise control over inventory. It is also known as an automatic inventory system. The basic objective of this system is to always make available details about the quantity and value of stock of each item. Thus, this system provides a rigid control over stock of materials as physical stock can be regularly verified with the stock records kept in the stores and the cost office.
(iv) Establishing Proper Purchase Procedures: A proper purchase procedure has to be established and adopted to ensure necessary inventory control. The following steps are involved.
(v) ABC inventory analysis: Always Better Control Analysis is the acronym for ABC analysis. It is a method of inventory management in which inventory items are divided into three groups: A, B, and C. The A category of inventory is continuously monitored because it contains high-priced items that may be few in quantity but are extremely expensive. The products in the B category have less expensive inventory than those in the A category, and the B category has a modest quantity of items, thus the control level is similarly moderate.
(vi) Just-in-time (JIT) inventory: In the Just in Time inventory control system, the company only stores as much inventory as it needs during the manufacturing process. The company saves money on storage and insurance by not having excess inventory on hand. When the old stock of goods is nearing replenishment, the corporation orders more. This form of inventory management is a little dangerous because a small delay in ordering new merchandise can result in a stock-out situation. As a result, this strategy necessitates careful preparation to place new orders on time.
6. Explain the MRP method.
Ans: Following are the material Requirements planning:
(i) Economic Order Quantity: The technique focuses on determining how much inventory the company should order at any given time and when they should place the order. The store manager will reorder when the inventory reaches the minimal level. The EOQ approach reduces the ordering and carrying costs associated with placing an order. With the EOQ model, the organisation can place the right inventory quantity.
(ii) Minimum Safety Stocks: A company’s minimum safety stock is the amount of inventory it keeps on hand to avoid a stock-out situation. It’s the point at which we place a fresh order before the old stock runs out. If an organisation’s total inventory is 18,000 units, they will place a new order when the inventory reaches 15,000 units. As a result, the 3,000 inventory units will be included in the minimum safety stock level.
(iii) VED Analysis: Vital Essential and Desirable is the acronym meaning vital essential and desirable. Businesses mostly use this method to keep track of inventory spare parts. For example, crucial items that are expensive and necessary for production demand a larger inventory. Others are critical spare parts that, if not present, could slow down the manufacturing process, necessitating the maintenance of such inventories. Similarly, an organisation can keep a low amount of inventory for desired items that aren’t needed as frequently as others.
(iv) Fast, Slow & Non-moving (FSN) Method: The FSN method of inventory control is quite effective in preventing obsolescence. The inventory goods are not used in the same order; some are needed frequently, while others are not. As a result, inventory is divided into three categories: fast-moving inventory, slow-moving inventory, and non-moving inventory. The usage of inventory is used to make an order for new inventory.
7. Write the advantages and disadvantages of Just in time inventory.
Ans: Following are the Advantages of Just-in-Time Inventory:
(i) Inventory obsolescence should be kept to a minimum, as the high rate of inventory turnover prevents any items from remaining in stock and becoming obsolete.
(ii) Because manufacturing runs are so short, it’s easier to suspend production of one product type and switch to another to accommodate changing client demand; and because inventory levels are so low, inventory holding costs (such as warehouse space) are kept to a minimum.
(iii) Because fewer inventories are required, the corporation is investing significantly less in its inventory.
(iv) Inventory is less likely to be harmed within the organisation because it is not kept for long enough for storage-related incidents to occur.
(v) Production errors may be detected and repaired more rapidly, resulting in fewer defective items being created.
These are the Disadvantages of Just-in-Time Inventory:
(i) Despite the magnitude of the preceding advantages, there are also some disadvantages associated with just-in-time inventory, which are.
(ii) A supplier who fails to deliver items on time and in the correct quantities to the company may significantly influence the manufacturing process.
(iii) A natural disaster could disrupt the flow of goods from suppliers to the enterprise, thereby halting manufacturing.
(iv) An investment in information technology should be made to link the company’s and its suppliers’ computer systems to coordinate parts and materials delivery.
(v) Because it has few or no finished items on hand, a company may not be able to meet the demands of a large and unexpected order right away.
8. What is inventory management software?
Ans: Inventory management software streamlines the tasks required to properly maintain inventory, manage reordering, and update accounting data by automating inventory and warehouse management components. Inventory management software should fundamentally allow the business to know what is occurring with your stock at any time. Because inventory management software is so critical to a company’s daily operations, it’s critical to choose a dependable, effective system that has the features you require.
9. Why do we need automation in the supply chain?
Ans: The use of digital technologies to reduce operating expenses is known as supply chain automation. That is a broad concept, but we will delve further. Artificial intelligence (AI) and machine learning are two of the most prominent technologies that are used in automation (ML). These systems are critical for improving your supply chain and adding more automation will reduce your team’s effort and improve supply chain solutions. Automation comprises recognizing and automating repeated processes, which are frequently time-consuming or error prone. Almost every component of the supply chain may be automated, but three forms of automation will benefit you the most: back-office, transportation, and warehouse automation. Because supply chains are based on process-oriented tasks, making these jobs as efficient as feasible is critical. Supply chains are prone to errors because they contain so many different operations, including manual paperwork, production, inventory, shipping, and more – all of which are logistic procedures that can be automated.
10. How does inventory management software work?
Ans: The majority of inventory management software is now cloud-based, and most experts advocate it. Cloud-based software eliminates the need for servers and IT workers and the need to develop your own cyber security strategy. Instead, cloud-based software is handled by the software firm, thus choosing a provider with strong service standards is critical. Cloud-based software is typically available as a monthly subscription, and when partnered with a strong vendor, can considerably lessen the burden of software management. It should be cloud-based or accessible via a web browser so that mobile devices can access it.” You should expect to pay a monthly subscription fee for access to cloud based inventory management software.
Inventory control is a procedure that involves tracking things as they come in and out of business and storage facilities using inventory management software. They have capabilities that can assist you always have the proper amount of inventory on hand. They also provide interfaces that allow you to track orders in real time and immediately update your accounting software.
11. What are the benefits of using inventory management software?
Ans: Following are the benefits of using inventory management software:
(i) Inventory tracking: Inventory management software works with other critical systems to improve inventory control by tracking inventory in real time and telling you where it is and how it travels within your ecosystem. This removes human mistakes in the process, which is renowned in a manual, spreadsheet-based approach. “Knowing where that artwork is when it’s time to sell it is incredibly useful,” Singletary said. “You need the technology to tell you to go to the exact area where the goods are stored and trace it from there all the way out the door to delivery to the consumer.”
(ii) Reordering: At its best, inventory management software not only keeps track of your whole inventory, but it can also automate reordering, so you never run out of important products. It can also be set up to assist you order enough things to keep fulfilling orders without retaining “dead stock,” or merchandise that has expired or has been sitting idle on your shelf for a long time.
(iii) Accounting integration: Many inventory management systems can be integrated with accounting software or have accounting features built in. This avoids data duplication and eliminates another point of human mistake and confusion.
12. What are the key features to look for in inventory management software?
Ans: The key features to look for in inventory management software are:
(i) Point of sale integration: Retailers may automatically track when a product sells at a physical shop, on an e-commerce platform, or through another sales network using integration with their point-of-sale system. The point-of-sale system automatically updates the inventory management system when a product is scanned or checked out in an online cart, accounting for the transaction in real time.
(ii) Inventory Catalogue: Merchants must be able to categories inventory not just by unit type, but also by distinguishing features such as size, colour, and other identifying factors. Whether you sell shoes, for example, you should be able to specify shoes down to the type – your system should be able to tell if you have ten sizes 11 Nike Air Jordan 1s in black, five sizes 10 Nike Air Jordan 1s in red, and so on.
(a) Automated reordering: When your inventory is running low, it’s critical to order more with plenty of lead time to avoid running out, especially for your most popular items. Many inventory management systems allow for automated reordering; simply select your minimum amounts for each item, and the system will generate a purchase order to send to your supplier to replenish your stock level when that number is achieved. Smart inventory management systems may also optimise your reordering points and reordering quantities per item based on previous sales data to maintain optimal inventory levels.
(iii) E-commerce integrations: Most businesses now sell across all sales channels, including physical stores, e-commerce websites, and online marketplaces such as Amazon. Your inventory software needs to track sales across all channels, so you don’t try to complete more orders than you have on hand. Integrating your ecommerce channels will assist you to avoid running into this issue.
(a) Product cost analysis: Tools for calculating product costs. It keeps track of your raw materials and completed goods, restocking necessary components when they reach minimum levels, but it also helps you forecast labour costs and running costs like machinery acquisition and maintenance. Look for an inventory management structure that can create a bill of materials with a breakdown of all of these expenditures.
(b) Forecasting: Forecasting is the study of previous production and sales data to forecast future order management requirements. This method can be made more accurate by using a forecasting program.
(c) E-commerce integrations: Previously, e-commerce was exclusively utilised for retail, but more manufacturers are now selling directly to consumers. Even if they don’t currently sell directly to consumers online, finding inventory software with e-commerce integration is important for manufacturers because they can use it to streamline sales to their retail clients or even expand to include an additional sales channel in the future.
