Marketing Essentials

Chapter 24 Stock Handling and Inventory Control 1

Marketing EssentialsMarketing Essentials

Section 24.2 Inventory Control

Chapter 24 Stock Handling and Inventory Control


SECTION 24.2SECTION 24.2

What You'll LearnWhat You'll Learn

Inventory ControlInventory Control

The concept of inventory management

Different types of inventory systems

Unit and dollar control of inventory

How to calculate stock turnover

The concept of stock management of basic, model stock, and never-out lists

The impact of technology on inventory systems


SECTION 24.2SECTION 24.2 Inventory ControlInventory Control

Why It's ImportantWhy It's Important

The inventory a business owns represents money tied up in products until the inventory is sold. Since inventory is a large part of the total investment of a business, well-managed and controlled inventories increase the profits of a business.



Key TermsKey Terms

inventory inventory management just-in-time

inventory system perpetual inventory system physical inventory system tickler control dollar control

unit control stockkeeping unit stock turnover basic stock list model stock list never-out list real-time inventory

system



Inventory refers to an amount of goods stored, including raw materials, purchased components, manufactured sub assemblies, works in process, packaging materials, and finished goods.

Inventory management is the process of buying and storing products for sale while controlling costs for ordering, shipping, handling, and storage.

Inventory Management

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Inventory Management

A just-in-time inventory system is an arrangement in which suppliers deliver parts and raw materials just before they are needed for production. Plants keep only small stocks on hand to avoid tying up money and inventory space.

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Inventory Systems

All merchandise bought and sold must be tracked to gain the information needed for effective inventory management. Two methods of tracking inventory are:

the perpetual inventory system

the physical inventory system



Perpetual Inventory System

A perpetual inventory system tracks the number of items in inventory on a constant basis, as sales occur. There are two strategies:

Manual Systems Employees gather paper records of sales and enter the information into the inventory system.

Computer Based Systems A point-of-sale terminal automatically feeds sales transaction data directly into a computer.



Under a physical inventory system, stock is visually inspected or actually counted to determine the quantity on hand.

Visual Control Used to monitor physical inventory levels. Stock cards specify the number of each item to be kept on hand.

Physical Inventory System

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Tickler Control A small portion of the inventory is physically counted each day so that the entire inventory is accounted for on a regular basis.

Annual Inventory Count Inventory is physically counted once a year. Most businesses do this.

Physical Inventory System

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Many businesses use both inventory systems.

The perpetual system gives an up-to-date inventory record throughout the year.

The physical system gives an accurate count that can be compared to the perpetual records to identify errors or problems.

Using Both Systems



Stock control involves monitoring stock levels and investments in stock so that a business is run efficiently. Planning and monitoring stock levels requires the use of several different systems:

dollar vs. unit control methods

stock turnover calculations

three stock lists (model, basic, and never-out)

Stock Control



Dollar control represents the planning and monitoring of the total inventory investment that a business makes. This information helps a business determine its net profit.

Unit control refers to the quantities of merchandise that a business handles. This information helps a business make better merchandising decisions.

Dollar vs. Unit Control

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In a unit control inventory system, each item or group of related items is referred to as a stockkeeping unit (sku). Tracking the skus shows which items (including which sizes and colors) are successful and which are not selling. This system also helps show when a product needs to be ordered.

Dollar vs. Unit Control

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Stock turnover is the number of times the average inventory has been sold and replaced in a given period of time. High turnover rates mean higher profit for the business because its money is not tied up in inventory.

Stock Turnover

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Stock turnover rate is computed as follows:

Net sales (in retail dollars) Average inventory on hand (in retail dollars)

When only cost information is available, calculate stock turnover this way:

Cost of goods sold Average inventory on hand (at cost)

Stock Turnover

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There are three plans used to monitor different kinds of stock. They are:

basic stock list—for staple items

model stock list—for fashion items

never-out list—for very popular items

Stock Lists

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Buyers use basic stock lists to plan purchases and keep track of items that should always be in stock. Where on this list is the stockkeeping unit (sku)? If you ran a retail store, what kind of items would be on your basic stock list?

Basic Stock List

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October Sales November Sales December Sales

Stock Description Size PackingUnits Cost Retail Min.

StockThis Year

Last Year

This Year

This Year

Last Year

Last Year

1381

1382

1383

1384

1385

1386

SkippyPeanut Butter

SkippyPeanut Butter

SkippyPeanut Butter

JifPeanut Butter

JifPeanut Butter

JifPeanut Butter

32 oz.

32 oz.

18 oz.

18 oz.

12 oz.

12 oz.

24

24

24

24

24

24

4

8

8

4

8

8



Buyers use model stock lists for fashion merchandise. How and why does this type of list differ from a basic stock list in form and content? Why would it be more difficult to maintain accurate model stock lists than basic stock lists?

Model Stock List

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PRODUCT CLASS ____________________________________________________ SEASON ____________________________

Specific StylesGeneralStyles

PriceRange

Color Size 6 Size 8 Size 10 Size 12 Size 14TotalUnits

Blouse

Blouse

Sleeveless Tailored

Short-sleeve Oversize

$25

$35

White

Black

Blue

Pink

Orange

12

12

12

24

24

1

1

1

2

2

3

3

3

6

6

3

3

3

6

6

3

3

3

5

5

2

2

2

4

4

Misses Sportswear Spring



A never-out list is used for best-selling products that make up a large percentage of sales volume.

Example: A video rental store will keep a popular movie on the never-out list and keep a large quantity of it in the store. Later, more popular titles will replace it.

Stock Lists

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Technology is quickly changing the way stock is handled and controlled. In particular, retailers use:

UPCs to capture sku-level information at the point of sale.

Standard electronic data interchange (EDI) transactions for electronic B2B communication.

Standardized shipping container marking (SCM) to quickly identify cases and their contents.

The Impact of Technology on Inventory Management


24.2 ASSESSMENTASSESSMENT

Reviewing Key Terms and Concepts

1. What is inventory management and why is it important?

2. Explain the concept of just-in-time inventory.3. Name the two different types of inventory

systems used for inventory management.4. What is the difference between dollar control

and unit control as they relate to inventory management?

5. What is stock turnover?


24.2 ASSESSMENTASSESSMENT

Thinking Critically

Do you think a just-in-time inventory control system could be used in a retail or wholesale operation? Why or why not?


24.2 Graphic OrganizerGraphic Organizer

Inventory Systems

PerpetualInventory SystemTracks inventory on

a constant basis, giving an up-to-date record throughout

the year.

PerpetualInventory SystemTracks inventory on

a constant basis, giving an up-to-date record throughout

the year.

PhysicalInventory System

Stock is visuallyinspected or counted

to determineactual inventory.

PhysicalInventory System

Stock is visuallyinspected or counted

to determineactual inventory.

Business can useboth systems,

comparing physicalrecords to perpetual

records to identify problems.

Manual System

Manual System

ComputerBased System

ComputerBased System

Visual Control

Visual Control

Tickler Control

Tickler Control

Annual Inventory

Annual Inventory


End of Section 24.2

Marketing EssentialsMarketing Essentials