Inventory management and Techniques - Kickoffall Info Hub

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Sunday, November 22, 2020

Inventory management and Techniques

Inventory is the goods available for sale and raw materials used to produce goods available for sale. The three types of inventory include raw materials, work-in-progress, and finished goods. Inventory management involves administration policies and procedures to reduce inventory costs.

The primary objective of inventory management is to ensure continuous supply of raw materials and facilitate uninterrupted production. 

1.       Inventory Carrying Costs:

Inventory carrying costs are the costs related to storing and maintaining its inventory over a certain period of time. The following are types of inventory carrying costs:

Ordering costs

3.       carrying costs

4.       Capital costs (interest on money invested in land building and inventory)

5.       Storage space costs

6.       Inventory service costs

7.       Handling equipment costs

8.       Inventory risk costs

9.       Out of stock costs

10.   Overtime costs

    Inventory control techniques:

1.       Always better control (ABC) classification

2.       Economic Order Quantity (EOQ)

3.       Vital, Essential and Desirable (VED) classification

4.       Scarce, Difficult and Easy to obtain(SDE) classification

5.       Fast-moving, Slow-moving and Non-moving (FSN) classification

6.       Two bin system

7.       SOS system


It is also known as Selective Inventory Control Method (SIM)

ABC control technique divides an inventory into three categories A,B, and C based on their annual consumption value.


The VED analysis is done to determine the criticality of an item and its effect on production and other services. It is specially used for the classification of spare parts.


the SDE analysis is based on the availability of items and it very useful in the context of scarcity of supply. In this analysis S refers to scarce items, generally imported; D refers to difficult items and E for easily available items.

FSN: it stands for fast-moving, slow-moving, and non-moving.

SOS: Seasonal and Off Seasonal

Minimum- Maximum Technique: the minimum quantity is established in the same way as any re-order point. And the maximum is the minimum quantity plus the optimum lot size.

Two – bin technique: it is the oldest system of inventory control. It is a technique in which the order is placed when one bin inventory is used.

EOQ: It is also known as Q Opt (optimum quantity).  It is the technique to decide the order size at which the total cost, including ordering cost and carrying cost, is the least.

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