Page 175 - DMGT550_RETAIL_MANAGEMENT

Retail Management

Notes sales just before and just after the count takes place to establish a more complete and
accurate inventory count.

Note Inventory holding cost is one of the major cost in an organization and as such
keeping low inventory level is always a major concern of an organization.

10.2 Establishing a Control System for Managing Inventory

An inventory control system serves three general purposes, according to author Steven Bragg in
his book “Inventory Accounting”: It must account for the quantity of physical inventory, its
value and the proper billing of shipped goods. Bragg described 68 individual procedures and
controls.
Automation

Most companies use software-based control systems to automate those 68 functions, wherever
possible. Bragg’s list of procedures includes both manual and automated procedures. Author
Sven Axsater, in his book “Inventory Control,” expanded upon those automated functions. As
Axsater describes, the three elements of an automated inventory control management system
include a forecasting module, which updates demands and evaluates errors; a module for
determining reorder points and order quantities (for example, to reorder bicycle helmets if
inventory falls below 25); and continuous (or periodic) monitoring of inventory level and
outstanding orders.

Managing Stock

Inventory does not just “sit there” on a company’s shelves; it costs money to store and maintain,
represents potential profits and, in time, becomes obsolete. A company must actively manage
its existing inventory.

One procedure is to reject purchases that were not preapproved, such as a shipment that arrives
without supporting paperwork. A second is revising safety stock for seasonal items, such as
Walmart stocking up on Christmas decorations in late November. A third is managing and
sometimes reducing products and options. This is what happens when a company like General
Motors takes a model out of production (thus inventory).

Managing off-site inventory—for example, in leased warehouses or by third-party logistics
providers—calls for four specific tasks: maintaining access to the off-site inventory; including
off-site inventory in total inventory; ensuring that inventory is accounted for in closing procedures
(like month-end accounting); and in conducting periodic audits of off-site inventory.

An effective system includes reviewing inventory for obsolete stock. This allows a company to
discount or discard that obsolete stock, write it off for tax purposes and better plan future
production.
An effective system audits inventory material costs, which compares the theoretical costs with
the actual cost of materials. This way, a company can adjust its standard costs or manage its
purchasing department and vendors to adjust costs.

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