BHHAM- 403
HOTEL OPERATIONS MANAGEMENT
Inventory Management
Inventory Controls
Inventory control is a means for maintaining the right level of supply and reducing loss to
goods or materials before they become a finished product or are sold to the consumer. The
simplest language, inventory control may be said to be a planned method whereby
investment in inventories held in stock is maintained in such a manner that it ensures proper
and smooth flow of materials needed for production operations as 'well sales, while at the
same time, the total costs of investment in inventories is kept at a minimum.
USES OF INVENTORY CONTROL
a) To ensure adequate supply of products to customer and avoid shortages as far as
possible.
b) To make sure that the financial investment in inventories is minimum (i.e., to see that the
working capital is blocked to the minimum possible extent).
c) Efficient purchasing, storing, consumption and accounting for materials is an important
objective.
Inventory Controls
USES OF INVENTORY CONTROL
d) To maintain timely record of inventories of all the items and to maintain the stock within the
desired limits.
e) To ensure timely action for replenishment.
f) To provide a reserve stock for variations in lead times of delivery of materials.
g) To provide a scientific base for both short-term and long-term planning of materials
h) To determine size of inventory
i) To assign responsibility for carrying out inventory control functions, and help in decision
making
INVENTORY CONTROL TECHNIQUES
Some important analysis carried out are :
❖ ABC Analysis - ABC analysis, by its name, helps to categorize the inventory into
three categories, i.e., Category A is for the most valued products that are providing the
highest profits. Category B comprises the decent-performing items. And the last is
Category C for the small transaction that plays a vital role in overall profit but least
performing items individual terms. With this technique, the retailer can identify and
decide which item to keep and which to eliminate.
❖ Economic Order Quantity: Economic Order Quantity (EOQ) is the formula that is used
to calculate the cost of production, demand rate, and other factors that helps the
company to purchase the inventory. This formula identifies the greatest units to
minimize buying and holding costs.
INVENTORY CONTROL TECHNIQUES
❖ Minimum Order Quantity: Minimum Order Quantity (MOQ) is the process of
purchasing the least quantity of inventory by the retailer to keep the cost low. This
type of inventory management technique helps to avoid wasting resources on orders
that deliver little profits.
❖ Safety Stacks Inventory: Safety Stacks Inventory is a technique that involves the
management of extra inventory items to avoid the out-of-stock situation. The
technique basically ensures fluctuations in demand and order fulfillment in critical
conditions.
❖ Dropshipping: Last but not least is dropshipping, which is a method where a
supplier, instead of picking the item from their own inventory, rather they purchase it
from a third party and ship it to the customer. This method helps to maintain the
supply chain even if the product is out-of-stock.
Principles of Inventory Management
❖ Demand Forecasting: Accurate demand forecasting has the highest potential savings
for any of the principles of inventory management. Both oversupply and undersupply
of inventory can have critical business costs. Whether it is end-item stocking or raw
component sourcing, the more accurate the forecast can be.
❖ Warehouse Flow: The old concept of warehouses being dirty and unorganized is
outdated and costly. Lean manufacturing concepts, including 5S have found a place in
warehousing. Sorting, setting order, systemic cleaning, standardizing, and
sustaining the discipline ensure that no dollars are lost to poor processes.
❖ Inventory Turns/Stock Rotation: In certain industries, such as pharmaceuticals,
foodstuffs and even in chemical warehousing, managing inventory down to lot
numbers can be critical to minimizing business costs. Inventory turns is one of the key
metrics used in evaluating how effective your execution is of the principles of
inventory management.
Principles of Inventory Management
❖ Cycle Counting: One of the key methods of maintaining accurate inventory is cycle
counting. This helps measures the success of your existing processes and maintain
accountability of potential error sources. There are financial implications to cycle
counting. Some industries require periodic 100% counts. These are done through
perpetual inventory count maintenance or though full-building counts.
❖ Process Auditing: Proactive error source identification starts with process audits.
One of the cornerstone principles of inventory management is to audit early and often.
Process audits should occur at each transactional step, from receiving to shipping
and all inventory transactions in between.
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