Q1.

Answer:
Introduction
Inventory management in business refers to managing order processing, manufacturing, storage, and
selling raw materials and finished goods. It ensures the right type of goods reach the right place in the
right quantity at the right time and at the right price. Thus, it maintains the product availability at
warehouses, retailers, and distributors. In other words, Inventory management can be defined that
inventory or stock management strategy concerns the supervision and management of raw materials
and finished goods from manufacturing units to warehouses and then to their points of sale.

Concepts and Applications

An effective inventory management system is an integral part of supply chain management (SCM). It
plays a crucial role in overseeing purchases of production components from suppliers and fulfilling
customer orders. Businesses use this strategy to meet consumer demands and grow sales effectively. It
also helps them track the movement of products from manufacturing units to warehouses and then to
points of sale. Inventory management is essential for any business concerned with the manufacturing
and selling of products and services. Inventory is the core of a manufacturing company, a retail store,
an e-commerce business, a restaurant, an FMCG firm, or fright/ logistics company. While a storage of
inventory might be problematic, having too much can lead to damage and waste due to demand
fluctuations. But if done correctly, it ensures a smooth flow of goods, from acquiring raw materials to
selling finished goods. That being said, inventory management is only as powerful as the way you use
it. Let’s take a look at some inventory control techniques you may choose to utilize in your own
warehouse or company.
1. Economic order quantity.
Economic order quantity, or EOQ, is formula for the ideal order quantity a company needs to purchase
for its inventory with a set of variables like total costs of production, demand rate, and another factors.
The overall goal of EOQ is to minimize related costs. The formula is used to identify the greatest
number of product units to order to minimize buying. The formula also takes the number of units in
the delivery of and storing of inventory unit costs. This helps free up tied cash in inventory for most
companies.
2. Minimum order quantity. (MOQ)
On the supplier side, minimum order quantity is the smallest amount of set stock a supplier is willing
to sell. If retailers are unable to purchase the MOQ of a product, the supplier won’t sell it to you. For
example, inventory items that cost more to produce typically have a smaller MOQ as opposed to
cheaper items that are easier and more cost effective to make.
3. ABC analysis.
This inventory categorization technique splits subjects into three categories to identify items that have
a heavy impact on overall inventory cost.
 Category A -serves as your most valuable products that contribute the most to overall profit.
 Category B-is the products that fall somewhere in between the most and least valuable.
 Category C- is for the small transactions that are vital for overall profit but don’t matter much
individually to the company all to-gather.
4. Just-in-time (JIT) inventory management.
Just-in-time (JIT) inventory management is a technique that arranges raw material orders from
suppliers in direct connection with production schedules. JIT is a great way to reduce inventory costs.
Companies receive inventory on an as -needed basis instead of ordering too much and risking dead
stock. Dead stock is inventory that was never sold or used by customers before being removed from
sale status.
5. Safety stock inventory.
Safety stock inventory management is extra inventory being ordered beyond expected demand. This
technique is used to prevent stock outs typically caused by incorrect forecasting or unforeseen changes
in customer demand.
6. FIFO and LIFO
LIFO and FIFO are methods to determine the cost of inventory. FIFO, or First in, first out, assumes
the older inventory is sold first. FIFO is a great way to keep inventory fresh. LIFO, or Last-in, First-
out, assumes the newer inventory is typically sold first. LIFO helps prevent inventory from going bad.
7. Reorder point formula.
The reorder point formula is an inventory management technique that’s based on a business’s own
purchase and sales cycles that varies on a per- product basis. A reorder point is usually higher than a
safety stock number to factor in lead time.
8. Batch tracking.
Batch tracking is a quality control inventory management technique wherein users can group and
monitor a set of stock with similar traits. This method helps to track the expiration of inventory or
trace defective items back to their original batch.
9. Consignment
This technique calls for the dealer to give stocks to the retailer. The dealer has the goods till consumer
purchases them. Before the consumers acquire the items, the items are gotten by the seller. In such
business improbability sought after is extremely frequent for the stores. On the other hand, the dealer
or manufacturer is quite specific regarding the demand and, for that reason transferred their products.
10. Drop ship and cross-dock.
The costs for renting out inventories are removed in this technique. The products are supplied straight
from the producers to the customers. The orders are approved by the stores in case of decline shipping.
For cross-docking, items are transferred from the auto mobiles saving the products to the ones
delivering them straight. In both instances, storage or inventory areas are not called for it. Such
organizations need locations for the sorting and storing of items just until the delivery is completed. A
network and source of Lorries are required in this technique.
11. Cycle evaluation

This technique requires the assessment of the required inventory ability for every day. It avoids the
total takeover of supplies by hand. Services can sample the inventories in this fashion. It would help
the business for the contrast of achieves from the lists and the initial stocks. The expenditures of
renting out the inventory are decreased utilizing such treatment while business is performed as
regarded fit during the test. In the case of companies dealing with the material of grocery stores,
voluminous deliveries are somewhat helpful. This would assist in taking care of the reduction of the
costs of delivery. Grocery stores do not end quickly if saved in maximum problems. If the stock held
by a shop is more than the needed quantity, this will guarantee the running of groceries.
The ABC technique is proper when store understands the category of the gotten items and the demand.
Anticipating, the needs would help utilize this technique. If they desire to minimize the costs of
inventories, consigning is helpful for a store. Products can be delivered to the consumers directly from
the makers.

Conclusion
Inventory management is an essential part of every business. With an effective inventory management
system in place, the business can significantly reduce its various costs like warehousing cost,
inventory carrying cost, ordering cost, cost of obsolescence, etc. It improves the supply chain of the
business. Managers are able to forecast the level of production at which they need to place new orders
for inventory. Hence, organizations should take all the necessary steps to maintain an effective
inventory management and control system.
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