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Chapter 24 Stock Handling and Inventory Control 1
Marketing EssentialsMarketing Essentials
Section 24.2 Inventory Control
Chapter 24 Stock Handling and Inventory Control
Chapter 24 Stock Handling and Inventory Control 2
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
Chapter 24 Stock Handling and Inventory Control 3
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.
Chapter 24 Stock Handling and Inventory Control 4
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Chapter 24 Stock Handling and Inventory Control 5
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Slide 1 of 2
Chapter 24 Stock Handling and Inventory Control 6
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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.
Slide 2 of 2
Chapter 24 Stock Handling and Inventory Control 7
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Chapter 24 Stock Handling and Inventory Control 8
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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.
Chapter 24 Stock Handling and Inventory Control 9
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Slide 1 of 2
Chapter 24 Stock Handling and Inventory Control 10
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Slide 2 of 2
Chapter 24 Stock Handling and Inventory Control 11
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Chapter 24 Stock Handling and Inventory Control 12
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Chapter 24 Stock Handling and Inventory Control 13
SECTION 24.2SECTION 24.2 Inventory ControlInventory 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
Slide 1 of 2
Chapter 24 Stock Handling and Inventory Control 14
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Slide 2 of 2
Chapter 24 Stock Handling and Inventory Control 15
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Slide 1 of 2
Chapter 24 Stock Handling and Inventory Control 16
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Slide 2 of 2
Chapter 24 Stock Handling and Inventory Control 17
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Slide 1 of 4
Chapter 24 Stock Handling and Inventory Control 18
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Slide 2 of 4
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
Chapter 24 Stock Handling and Inventory Control 19
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Slide 3 of 4
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
Chapter 24 Stock Handling and Inventory Control 20
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Slide 4 of 4
Chapter 24 Stock Handling and Inventory Control 21
SECTION 24.2SECTION 24.2 Inventory ControlInventory Control
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
Chapter 24 Stock Handling and Inventory Control 22
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?
Chapter 24 Stock Handling and Inventory Control 23
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?
Chapter 24 Stock Handling and Inventory Control 24
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
Chapter 24 Stock Handling and Inventory Control 25
End of Section 24.2
Marketing EssentialsMarketing Essentials