Inventory management

Question 1

What are four key pointers with respect to inventory management?

Answer 1

• Make sure the purpose of an inventory is clear
• Consider both the costs and benefits if holding inventory
• Make sure that there is a good match between the purpose of an inventory and the type of inventory system used
• Determine when to replenish inventory and by how much: the quantity and timing decisions

Question 2

What is the difference between stock turnover and stock cover?

Answer 2

Stock cover is used to calculate the length of time the inventory will last, subject to normal demand. For example an annual turnover of $5 per year. You hold $2.50 worth of inventory, This means you have a stock cover of 26 weeks.

Stock turnover is how often the stock is used up in a period, usually a year. In the above example, it will turn over twice in a year.

Question 3

What is Economic Order Quantity (EOQ)?

Answer 3

This is a calculation which aims to determine the most cost-efficient quantity of a material to purchase and is based on four variables: annual demand in units; annual ordering cost per unit; annual holding cost per unit; and unit cost.