inventory management terms shrink perpetual cost inventory methods pos retail inventory method model...

Inventory ManagementTerms

Shrink Perpetual Cost inventory Methods POSRetail inventory Method Model InventoryLIFO Book InventoryFIFO PhysicalAveraging Turnover rateObsolescence Costs Safety StockWarehouse Costs COGSGAAP Lead-timeJIT

Why create an inventory? What is the most important reason to create an inventory?

In case of disaster

Shrink is the Enemy

2% for most retailers

(Supermarkets have less than 1%)

Shrinkage costs can be:

Theft, breakage, damage, cashier errors, bookkeeping

errors, or spoilage

Obsolescence Costs

This is the money lost when products are ” falling into disuse or becoming

out of date” while in inventory.

Shrink is an inherently negative number

So if your inventory shrink comes out to be a negative number?

The Retail Inventory Method

was developed by the grocery industry to inflate the value of their inventories, making their businesses look more valuable.

Retail Inventory Method

Not recognized by (GAAP)

GAAP is an acronym for

Generally Accepted Accounting Principles. Cost inventories are the only methods appropriate for GAAP

There are three types of Cost Inventory Methods

LIFO

FIFO

Averaging

Last In First Out, (LIFO)

Not for Perishables

Stock clerks do not rotate products

Savings on inventory taxation

First In First Out (FIFO)

For perishable products

Clerks rotate products

Loss on inventory taxation

Averaging

An inventory for products that pour.

Inventory methods keep track of products at:

the Cost Of Goods Sold (COGS)

Point of Sale Inventory (POS)

Is a computerized system that keeps track of inventories as products are sold. POS inventories are generated from cash register receipts.

Just In Time (JIT) inventories

Take the use of computers one step further. Products are ordered

as they are purchased by customers

Lead-time is the time is takes

after placing an order before receiving the product

Book Inventory is generated fromBook-Keeping. This is

sometimes called the Perpetual

This is generated from the sale of products. (POS) Point Of Sale

Perpetual Inventories

Is the amount of product that you think you have on hand

Physical Inventoryis:

when all the products are counted and valued (Done

periodically)

If you subtract the Book/Perpetual Inventory, what

you think you have, from-

Physical Inventory, what was just counted, you get shrink.

The equation for shrink is:

Book inventory ( -) Physical inventory = shrink

Turnover Rate

How often, on average, is the product inventory is sold?

(By dollar volume)

The determination of a turnover rate can help a retailer decide

how much self space to allocate or even where the product should be placed in the store. Turnover rates are not only determined for individual products, but for categories, departments as well the entire store.

Model Inventory

Is what you think you will need to Warehouse

Model inventories are:

used when you know you need to warehouse some product. An example of this would be stocking up on bathing suits before Summer.

If you run out of the product, due to seasonality, the retailer loses out on sales. Historical data is often used to make this determination.

The costs associated with keeping back stock inventory is know as:

Warehouse costs

Safety Stock

The least amount of inventory “that keeps you from running out of stock” and staying in business.

Safety Stock

Safety Stock is a calculation that factors in lead-time and shelf space of the product. Some products need always be in stock or at least have back-stock to stay in business.