Answer to Question #224319 in Management for Ronak

Question

discuss the various inventory controls/classification techniques prevalent in the industry mentioning the basis of each classification.Discuss any three of these techniques as applicable to an organization in the retail sector like big bazaar or D Mart for effective management of their inventories.

Answer 1

ABC analysis

This inventory categorization technique splits subjects into three categories to identify items that have a heavy impact on overall inventory cost

Category A serves as your most valuable products that contribute the most to overall profit.

Category B is the products that fall somewhere in between the most and least valuable.

Category C is for the small transactions that are vital for overall profit but don’t matter much individually to the company alltogether.

Economic order quantity

Economic order quantity, or EOQ, is a formula for the ideal order quantity a company needs to purchase for its inventory with a set of variables like total costs of production, demand rate, and other factors.

Reorder point formula

The reorder point formula is an inventory management technique that’s based on a business’s own purchase and sales cycles that varies on a per-product basis. A reorder point is usually higher than a safety stock number to factor in lead time.

Safety stock inventory

Safety stock inventory management is extra inventory being ordered beyond expected demand. This technique is used to prevent stockouts typically caused by incorrect forecasting or unforeseen changes in customer demand.