Introduction

There are limitless rise in the demand for products and services in different economical sectors.
As a result, management practices have gone through many chances so as to smoothen the
process of efficient and effective service delivery to clients and other organization stakeholders.
Inventory management is widely considered as the ideal tool for optimal use of resources and for
maintaining overall efficiency in the operations (Akindipe, 2014). Yet, there are various
challenges in inventory managements such as stock-outs, delays and loss of production time.
These are widely recognized challenges which researchers continue to look for optimal solutions
all over the world. Higher efficiency in delivery and supply chain management have become
vital, especially for big companies, to maintain efficient, smooth and quality delivery of
products/services to clients (Gordon and Jaideep, 2016). Different organizations adopt different
inventory management methods to closely monitor their inventory costs. Hence, inventory
management has become a vital component of supply chain management. This report covers the
contemporary inventory management techniques which are globally used for maintaining
optimal results and increase profitability of the organizations.

Twelve Inventory Management Techniques

Setting up and Monitoring Various Stock Levels
This approach will assist in creating a system to monitor different levels of inventory in order to
maintain optimal level of inventory in the most effective and efficient way. Expenses will rise
when there are higher levels of inventory and it will automatically push up the overhead costs as
well. Therefore, monitoring inventory levels and stock outs will help to create a proactive
management policy for any firm.

Identifying the business inventory demands is the most effective way to efficiently manage the
inventory. There should be a limitation for seasonal inventory and slow-moving or dormant
inventory should be minimized as well. In the end, the managers have the important job to decide
different stock levels so as to prevent any under-stocks/over-stocks. There are five types of
identifying stock levels for inventory management. Re-ordering level (ROL) is the phase where
the new supply order should be made. Maximum Level (MAL) is the level that should be
avoided for preventing sinking capital in wastages and obsolescence of inventory materials.
Minimum Level of Consumption (MLC) indicates the minimal quantity level of the materials
which should not be reduced to avoid any bottle-neck. Average Stock Level (ASL) is the average
MAL and MLC. Danger Level (DL) is the level which should be avoided at all cost. Economic
Order Quantity (EOQ) is for balancing the annual purchase quantity and quantity demanded
(Takim, 2014).
Accurate Inventory Budgets
Once there is a proper monitoring procedure set, the next step is to come up with a realistic
inventory budgets. Preparing purchase budget is a common practice in organizations that
requires large inventory. Revenue/Sales target of every department will be taken into account
while preparing the purchase budget of the organization. Budgeted figures will be compared with
actual performance in time to time for effectively managing the purchase of materials. Any
overlooks in forecasting can lead to overstocking of inventory due to unanticipated fall in
demand, which in turn increase carrying costs as well. Classifying inventory into ‘predictable’
and ‘unpredictable’ will be ideal for maintaining sound inventory in the predictable segment.
Fortunately, there is plenty of accounting software packages available for assistance in
automating this function (Gordon and Jaideep, 2016).

Automated Inventory System

This method offers a strong hand in managing the inventory at any time. Stocks can be checked
in a regular manner with the stock records and valuation records maintained in the store office.
Even if the automated inventory system exists, still the establishment of proper procurement
procedure cannot be overstated in the inventory management policy (El Alami et al., 2017).

Establishing Proper Purchase Procedures

Implementing a proper purchase procedure is essential for maintaining proper control over the
inventory. It is usually differs from business to business, but the ideal procedure is given in the
figure 1.

Figure 1:- Ideal inventory purchase procedures

Establishing proper purchase system is just a beginning, the inventory manager is required to
monitor the demand or usage of the items by performing ABC analyses and regular inventory
turnover, and these methods are explained further at the bottom.
Inventory Turnover Ratio (ITR)
This method is for minimizing cost/inventory approach. ITR is computed by comparing the cost
of materials utilizing divided by average inventory in a period. Four types of inventories can be
the outcome of comparing different inventory ratios at different periods in the past years.

First, Slow-moving inventories (SMIs) are the outcome of lower ITR and the manager should
ensure the inventories are maintained at minimum levels at all costs. Second, Dormant
inventories (DIs) are the outcome of zero demand and the organization have to decide whether to
scrap or retain the inventory. Third, Obsolete inventories (OIs) are same as dormant inventories
but they are no longer demanded due to outdated. Lastly, Fast-moving inventories (FMI), which
are the results of high demand of the inventory and any shortage, will lead to serious bottleneck
in the business operation (Umniati, Titisari and Chomsatu, 2018). Apparently, a close eye on the
ITR analysis would help to maintain good control over the FMIs, while reducing the wastages
that are related to the high level of DIs, OIs, and SMIs.

ABC Inventory Classification Technique

ABC (Always Better Control) is a popular inventory management technique which is adopted by
big firms to efficiently and effectively manage their large amount of inventory items (Hatefi, el
al, 2014). This method is focussed on increasing effective control over the materials by
differentiating the inventory into 3 groups which are group A, B and Q. Group A consists of the
expensive items which are usually between 10 to 20% of the inventory but covers up to 50% in
terms of total value of the inventory items. Group B comprise of 20 to 30% of the inventory
items and accounts around 30% of the inventories total value. Group C consist of 70-80% of the
inventory items but accounts only for 20% of the total value.

Just-In Time (JIT) Technique

JIT is a technique which focuses on restocking the inventory for firm just when there is a need
for it. It is the recommended method for the items with higher purchase price, ordering cost or
holding but has lower demands. This technique aims to avoid surplus inventory and its related
costs. In order to tackle this problem, business obtain inventory only when there is a demand for
that stock. But JIT approach will succeed only when the vendors deliver the items in time. This
is mainly for avoiding expensive and irreparable downtimes which could cause delay in
inventory delivery. This issue occurs regularly among Nigerians manufacturers (Takim, 2014).

Just-in-time, as emerging technique in scheduling, focuses on improving return of investment by

minimizing process inventory and related holding costs. As manufacturing scheduling strategy,
JIT is used in single and multiple machines environments while it is started to be adopted by the
flow shop machine environment (Adamu et al, 2014).
Bulk-Purchasing
This is a traditional method in controlling inventories; this approach bases the principle that you
can sell the goods in lower costs, if you buy them at bulk quantities. This approach can only be
adopted if management is confident that the goods are a fast-moving group of inventory. This
method is ideal for items that are highly demanded as it can result in major savings. On the other
hand, bulk purchasing usually take more time if compared with smaller quantity that occupies
less storage space and delivery/manufacturing time. Manufacturing enterprises consist of more
than 50% in current assets and inventories covers most of the assets/ working capital in the
organization (Ranganathan, 2014; Takim, 2014). Therefore, bulk-purchasing is an ideal
inventory management solution.

Vendor Managed Inventory (VMI)

Under this method, potential profits can be generated through open collaboration with reliable
vendors of vital inventories, specifically in large production management. VMI facilitate the
vendor to plan, monitor and control inventory for their clients in their vendor/client relationship.
Vendor will be responsible for managing the inventory for a specific level which was previously
agreed, this will enable the customer to focus on improving demand accuracy (Zanoni et al,
2014; Kannan et al, 2013). The client firms hand over the order making responsibilities in turn
for inventory replenishment that results in maximizing total capacity planning and institutional
efficiently. Organization develop mathematical model for the total costs so as to minimize it
through the inventory management system.

Outsourcing Inventory Control Personnel

Some firms hire external consultants for managing and controlling internal inventory systems.
These external consultants will be accountable for maintaining accuracy, cycle counting,
shipping and making purchase order and order-picking operation. Partnership can be made with
well dedicated specialists to maintain all inventory items which the firm posses and in transit as
well. They will also carry out adjustments, validate delivery, manage returns and employ
inventory reporting strategies (Gordon and Jaideep, 2016).

Lead Time Analysis

This is another helpful approach for getting insights about how often your inventory is restock.
Lead time is the total taken to reorder inventory. Delivery time differs from supplier to supplier
after the order is placed. Some suppliers take long time and known for late delivery of items;
these vendors should be delisted or removed from the list for optimal inventory management and
maintaining cost-effectiveness (Akindipe, 2014).

Software Applications and Tracking System

Many organizations implement the inventory management software applications for upgrading
their stock control system. There are many applications available these days for such capabilities;
most of them provide the organizations with a structured method for managing all incoming and
outgoing flow of inventory in the warehouse (Akindipe, 2014; Adoga & Valverde, 2014). Firms
get to save a large amount in costs related to the manual counting of inventory, errors and
reductions in stock-outs. Inventory management software can be customized according to the
organization needs. Moreover, various tracking system can be developed from spread-sheets to
computer programs, to monitor and manage inventory turnovers. They offer total control over
the inventory enabling inventory managers to maintain accurate record-keeping, material
requirement planning (MRP) of obtaining the right material at the right time, stock decision
making process such as expected workloads, predicting stock levels and order quantity,
managing material levels and monitoring cycle counts in warehouse or distribution center.

Conclusion
In a nutshell, this report covers the twelve inventory management techniques which are
contemporary and widely used. Organizations select inventory management techniques based on
its size, cost efficiency and available space in warehouse which are the key elements. A well
organized inventory control system is mostly related to cost-reduction, low holding costs and
goods, materials, products and services are delivered on time to the clients and stakeholders.
Different approaches can also be combined to improve service delivery while reducing the
handling costs.
References
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