The dictionary meaning of Inventory is STOCK OF

GOODS.

The word inventory is understood differently by

various authors. In accounting it may mean stock of
finished goods only.

 In a manufacturing concern, it may include raw

materials, work in progress and stores, etc.

In Retail, the amount of stock present in a retail outlet

and ready to be distributed.
Inventory Management is a Science primarily about
specifying the shape and percentage of stocked goods.

A proper planning of purchasing, storing, and

accounting should form a part of inventory management.

An efficient system of inventory management will

determine:

1)What to purchase
2) How much to purchase

3) From where to purchase.

4)Where to Store.

The purpose of inventory management is to keep the

stock in such a way that neither there is over- stocking nor
under- stocking.
EOQ is a quantity of
inventory which can
reasonably be ordered
economically at time.

In determining this

point, ordering costs and
Carrying Costs are taken
into consideration.

Ordering costs are

basically the cost of
placing an order.
Carrying cost includes costs of storage facilities and loss
of value through physical deterioration, cost of
obsolescence.

The balancing point is known as Economic Order

Quantity.
 It means Always Better Control
Under this the inventory is classified into 3 categories
viz. A B and C. These categories are based upon the
inventory value and cost significance .

Items of High value and small in no. are termed as A.

Items of moderate value and moderate in no. are
termed as B.
Items of small value and large in no. are in category C
The cost of each item is multiplied by the no. used in a
given period and then these items are tabulated in
descending numeric value order.
In this, the items are classified on the basis of their
criticality to the production process or other services.

In this classification of materials, V stands for Vital

items without which the production process would come to
standstill.

E denotes Essential items whose stock out would

adversely affect the efficiency of the production system.
Their non availability might cause temporary losses.

The D items are the Desirable items which are

Required but do not immediately cause a loss of
production.

 The VED analysis is done mainly in respect of spare

parts.
It is a philosophy that focuses attention on eliminating
waste by purchasing or manufacturing just enough of
the right items just in time.

It is a Japanese management philosophy applied in

manufacturing which involves having the right items of
the right quality and quantity in the right place and at the
right time.

It involves having products arrive as soon as the

customers order them.
This ratio is computed by dividing the cost of goods
sold by the average inventory.

Stock Turnover Ratio= Cost of goods sold

Average inventory

It is way of measuring how many times a business use

inventory in a given time period.

Business use inventory turnover to assess

competitiveness, project profits , and generally figure out
how well they are doing in their industry.
Stores and Spares term which commonly covers all kinds
of supplies necessary to keep production equipment
operating.

The firm should keep each and every component of

stores and spares to a reasonable level.

 Stores and Spares inventory turnover:

Annual Consumption of Stores and Spares

Stores and spares inventory
Every product at the store has a unique code. This
code helps in identification and tracking of the products
at the retail store.

The retailer feeds each and every SKU in the master

computer and can easily track the product in the stock
just by entering the SKU no.
It is a regular analysis of stock versus projected future
needs. This can be done through a manual review of stock
or by using inventory software.