Page 270 - DMGT207_MANAGEMENT_OF_FINANCES

Rupesh Roshan Singh, Lovely Professional University Unit 12: Inventory Management

Unit 12: Inventory Management Notes

CONTENTS
Objectives
Introduction

12.1 Role of Inventory in Working Capital
12.1.1 Purpose of Inventories
12.1.2 Types of Inventory
12.1.3 Inventory under Uncertainty and Safety Stock
12.2 Inventory Management
12.3 Various Techniques of Inventory Management
12.3.1 Setting of Various Stock Levels

12.3.2 ABC Analysis (called Always Better Control)
12.3.3 Establishment of System of Budget
12.3.4 Use of Perpetual Inventory Records and Continuous Stock Verification
12.3.5 Determining Economic Order Quantity
12.3.6 Review of Stores and Non-moving Items
12.3.7 Use of Control Ratios
12.3.8 Just-in-Time (JIT) System
12.3.9 Material Requirement Planning (MRP) System
12.4 Summary

12.5 Keywords
12.6 Review Questions
12.7 Further Readings

Objectives

After studying this unit, you will be able to:

 Recognize the meaning of inventory;
 Describe the role of inventory in working capital;
 Explain the various techniques of inventory management;
 Discuss the valuation of materials and inventories.

Introduction

The term ‘inventory’ refers to the stockpile of the product a firm is offering for sale and the
components that make up the product. In other words, inventory is composed of assets that will
be sold in the future in the normal course of business operations. The assets which firms store as
inventory in anticipation of needs are: (1) raw materials (2) work in process (semi-finished

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