Principles of Inventory Management

Posted by Dharani M on

Over past decade or so, I have been conducting Executive Development Programs for corporate, titled as Inventory Management or Principles of Inventory Management, depends on how the organisation would like it to be titled. I would simply call it as All About Inventory Management.

There are two fundamental ways to learn any body of knowledge. One, is Learning the Material itself and the other is Asking the Right Questions. The former is the most widely used method during our school and college days. We go through the classroom teachings and refer the recommended books. Do you think this is the most effective way of learning? Not at all. Our brain retains a concept much better through the second method that is questioning and finding the answer. Brain likes solving puzzles rather than something is spoon fed.

The most important thing is that the knowledge acquired through the first method stays as a mere knowledge itself and not very useful to real life scenarios, but the knowledge acquired through the second method is ready for application. That is one of main reasons case-study based method is adopted in most of the MBA programs to prepare the students to solve real world problems rather than rolling out walking encyclopedias.

So, what are we going to do now about Inventory Management? You know it. I am going to ask you about 60 questions and you are going to find answer for it yourself. It may sound little tough, but do this and I can guarantee you that you know everything about inventory plus you will be able to make remarkable improvements in your organisation in terms of inventory management or optimization. This is like a one-time exercise you will do and you will attain mastery in inventory management.

You can post your answers along with the question at ISCN and I will validate it for you, and it will also help other members. India Supply Chain Network (ISCN) [A LinkedIn Group committed to the excellence in Supply Chain]. Click here to join ISCN. Sometimes, it leads to debates in these responses, but it is good as it will help us to fine tune our understandings and lead to new learning.

Recently, I visited my native town Tirunelveli located on the southern most tip of India, a picturesque and serene place. Since it has been quite some time from my last visit, I wanted to meet my close friend Balakrishnan, residing a kilometer away from my house. I met him, we were chit-chatting and exchanging the happenings, Bala’s father asked me Venkadesh what do you do? I replied to him “uncle we both do the same thing, but with a margin of error”. He was little perplexed. He is an astrologer and I am an SCM Professional. He foretells and I forecast. As you know, forecasting is less accurate compared to foretelling, which is predicting the future as it is. After I explained him, he burst into laughter. Let us get started with the questions. Here you go…

  1. 1. Define inventory
  2. 2. Define inventory management
  3. 3. Types of inventory
  4. 4. Functions of inventory
  5. 5. Classification of inventory based on value addition
  6. 6. Nature of inventory based on demand
  7. 7. Differentiate between safety stock and cycle stock
  8. 8. What are the factors that determine safety stock?
  9. 9. How to calculate the volume of cycle stock?
  10. 10.Why do we need inventory?
  11. 11. Why excess inventory is bad?
  12. 12. Discuss the inventory-based conflicts between sales, marketing, operations, purchase and finance.
  13. 13. What is working capital management and how inventory relates to that?
  14. 14. Impact of inventory on balance sheet
  15. 15. Impact of inventory on income statement
  16. 16. Impact of inventory on cash flow statement
  17. 17. Who is the owner of inventory in an organisation and why?
  18. 18. What are all the methods adopted in different industries to preserve inventory?
  19. 19. How obsolete inventory is disposed of?
  20. 20. Who is a salvage buyer?
  21. 21. Why do we do the reconciliation of inventory?
  22. 22. How do you define physical inventory and logical inventory?
  23. 23. What is the difference between book inventory and system inventory?
  24. 24. What is Economic Order Quantity and how it is useful?
  25. 25. Define dependent demand
  26. 26. Define independent demand
  27. 27. Why do we need insurance for inventory?
  28. 28. What is the difference between fraud and embezzlement in terms of inventory?
  29. 29. How do you differentiate between replenishment and fulfillment?
  30. 30. How do you differentiate purchase requisition, purchase order, customer order, sales order and invoice?
  31. 31. Who is an underwriter and why he visits a warehouse?
  32. 32. What is a bullwhip effect?
  33. 33. Who coined the term Supply Chain Management?
  34. 34. Define raw materials
  35. 35. What are all the different inventory valuation methods?
  36. 36. Can there be any difference between physical movement of inventory and book movement of inventory?
  37. 37. Why a company uses anticipation inventory?
  38. 38. What is hedge inventory?
  39. 39. What is transit inventory and how it is different from distribution inventory?
  40. 40. How to design cycle counting for an organisation?
  41. 41. How to calculate the right size of inventory in all forms?
  42. 42. How part number is different from SKU number?
  43. 43. What is SKU nomenclature?
  44. 44. What is FSN analysis?
  45. 45. What is ABC analysis?
  46. 46. Who first coined the term bullwhip effect and what is the story behind that?
  47. 47. Describe the characteristics of forecasting.
  48. 48. What are quantitative tools in forecasting?
  49. 49. What are qualitative tools in forecasting?
  50. 50. What is Box-Jenkins method of forecasting?
  51. 51. What is Enterprise Inventory Policy?
  52. 52. What is a carrying cost and what are all its components?
  53. 53. What is Min-Max method?
  54. 54. What is VED analysis?
  55. 55. List out the typical criteria used by organisations in ABC analysis.
  56. 56. How Product Life Cycle (PLC) impacts the inventory held by a company?
  57. 57. List out the inventory replenishment methods.
  58. 58. What is back-flushing? and what are all the prerequisites to implement this method of inventory accounting?
  59. 59. What is Periodic Inventory Auditing and why it is still required in companies?
  60. 60. What is a Perpetual Inventory Auditing?

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About Author
Venkadesh Narayanan is the Principal Consultant at Fhyzics Business Consultants Pvt. Ltd. with over 25 years’ experience in business consulting, business analysis, process improvement, supply chain and new product development. He is a mechanical engineer and an MBA worked for several organizations in India, USA and Canada prior to joining Fhyzics. He is a former Indian Civil Servant [IRAS 2000 Batch] and served in Ministry of Railways, Government of India. You can find some of the videos of Venkadesh Narayanan on various topics in our YouTube Channel Business Analysis Digest and also feel free to connect with him through LinkedIn.

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Keywords:  Management, Inventory Management, Principles of Inventory Management, Organisation, Knowledge, Learning, Material,Teachings, CLassroom Teachings, Solving Puzzles, MBA Programs, Case-Study, Improvements, Remarkable Improvements, Optimization, Supply Chain, India Supply Chain Network, Learning, SCM, Professional, SCM Professional, Types of Inventory, Functions of inventory, Classification of inventory, Nature of Inventory, Safety Stock, Cycle Stock, Sales, Marketing, Operations, Purchase and Finance, Balance Sheet, Demand.


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