Answer to Question #236205 in Management for Nachiket Pawar

Question

List down briefly the various inventory management techniques prevalent in the industry. Discuss how some of these techniques would be applicable to a General Store in effective management of their inventories; i.e. grocery supplies, etc. (assume several inventories of your choice).

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Answer 1

Inventory management is concerned with how an organization controls and tracks its business inventory. It decides the flow of goods regarding how inventory is manufactured, used, brought in, and stored. Some of the inventory management techniques that are common in use include just-in-time (JIT), Economic order quantity (EOQ), First-in- first-out (FIFO), and Last-in- first-out (LIFO). 

In the Just-in-time management inventory technique, the sale dictates the distribution of stock. Benefits associated with this technique are minimizing waste, risk, and expenses. The disadvantage associated with this approach is quality of goods and delivery times may be affected. An example of the JIT technique is selling a particular commodity or grocery in a general store. Its application is in large stores and those that aim at reducing holding costs.

The economic order quantity technique uses purchasing costs, consumer demand and, holding costs in determining the point at which inventory levels tip. Stores that have earnings that are large and are big in size utilize this technique. It is also used in stores that need minimizing inventory-related expenses and use precise forecasting.

The FIFO technique is when an organization first sells the products that it bought first. Higher profits are usually associated with FIFO. At the point of purchase, inventory value is lower than at the selling point. For example, if you bought a beverage drink for $ 8 a unit, after one year, the cost has risen to $ 13. With FIFO, beverage drinks purchased for $ 8 will be sold first when inventory tracking takes place. If the first revenue is assigned to beverages for $ 13, it will result in lower earnings. The general stores that mainly use this technique are those dealing with perishable goods. 

For LIFO, it is the opposite of FIFO. With this inventory management technique, the product that is sold first is the latest bought. It is used in general stores with raw materials and goods that are non – perishable such as chemical, cement, metal, and household equipment.