Inventory Management Techniques and Costs

This assignment delves into the complexities of inventory management, examining various techniques used to optimize stock levels and minimize associated costs. It discusses key concepts such as demand forecasting, order size determination, and the implications of holding costs, ordering costs, and stockout costs. The analysis incorporates real-world examples and highlights the importance of implementing effective inventory management strategies for business success.

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Inventory Management Techniques
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1. What is the inventory management technique used by Poundland?
Inventory management
Inventory management is defined as the control of the flow of items or products that belong to an
organization. It seems simple and even inconsequential, but in reality it has a strong influence on
the supply chain of any business.When we do not do a good management of inventories, the
consequences can be shortages of items in stores (also known as stock-outs), high level of costs,
both for inventory maintenance and obsolescence, alteration in sales cycles, delay in customer
service (or low level of service) and, in the worst case, decrease in sales (Mercado, 2008).
1. Slogan Method:
It is one of the best known strategies, especially in wholesale sales processes. It basically
consists of keeping the items in the customers' deposits until they manage to sell them. During
your stay there, the items do not become the property of the clients; that is, our brand retains the
legal rights over them, because customers are only intermediaries.
2. ABC Analysis:

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Taking as a reference the Pareto principle, which is based on the 80/20 productivity rule, the
ABC analysis divides the stock into three categories: products with high value and small
quantity; the products with average value and average quantity; and products with reduced value
and large quantity. The idea is to manage the groups independently to achieve greater
profitability (Bragg, 2015).
3. Just In Time:
It is ideal for Poundland that aspire to keep the stock low. It consists of acquiring the raw
materials of the products within a few days (or even hours) of the beginning of the production
process. Although it avoids maintaining high levels of inventory in warehouses, it is a risky
technique given that often the limit of delivery, distribution and marketing dates is worked.
2. How are the out-of-stock products managed by Poundland?
The techniques of inventory management or the ways in which we manage it impact directly on
the supply chain, to the point of making the business fail. At its base, inventory management
refers to the control of the flow of products and services within the organization.

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If the inventory level is not properly managed, it can be a great weight for cash flow, while
increasing the costs of maintaining those stocks, loss of time, as well as inefficiency in the
supply chain and in the cycle of sale, even with lack of service to customers and loss of sales
(Cheng, 2010).
The management and optimization of inventory is an intrinsic part of the business, in which
nobody wants to have a problem, but in many cases there are, although they are unknown. Below
I present some of the inventory management techniques that are used by different organizations,
and many times the optimal solution is in the use of several of them within our organizations
(Motamen-Samadian, 2006).
3. How is using the inventory management system used by your company
advantageous?
Some of the benefits that your company will obtain by having a system to control their
inventories are:
• Raise the level of quality of customer service, reducing the loss of sales due to lack of
merchandise and generating greater loyalty to your company.

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• Improve the cash flow of your company, since buying more efficiently and having a greater
turnover of inventories will cause the money not to be sitting in your warehouse but working.
• To be able to identify the Your products will help you plan better
• Easily detect slow-moving or stagnant items to strategize so you can get rid of them easily
• Reduce your freight costs for more planning and reducing emergency purchases.
Wait quietly for the replacement
The replacement of the merchandise is not immediate, it may depend on many factors (suppliers,
distances, type of product). By keeping an inventory control, the orders are made taking into
account these delays, and the inconveniences are minimized.
Achieve discounts for large purchases
Normally when you buy significant lots or large quantities (wholesale), you get better prices or
discounts for quantity from suppliers. In addition, the cost of transportation is reduced. But
always analyze if this benefit is greater than maintaining both immobilized stock.
Know how much money is in merchandise

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The inventory is immobilized capital for a company. Many times this amount is greater, than that
destined to the rest of the day-to-day operations of the organization.
Offer variety to the customer
Keeping track of stocks allows you not to fail your customers, continuously offering all the
available variety: sizes, colors, brands, sizes, etc.
Reduce costs for inventory maintenance
Large purchases grant discounts from suppliers and minimize transportation costs. But beware.
Maintaining stocks is not free, it has associated costs that must be analyzed to know what the
optimal purchase lot is really (Motamen-Samadian, 2006).
Monitor the quality
Of more relevance in companies that have, as inputs to produce or merchandise for sale,
perishable or expired items, as in a grocery trade. A systematic control of stock allows to avoid
that the product arrives at the client if it is not in conditions.
Recognize thefts and waste
The same happens with waste and waste, if not controlled, may imply an increase in hidden
costs.

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Plan money flows from purchases
Knowing the movements of the inventory, understanding its fluctuations, when orders are placed
and when they must be paid, lets you know how much money you should have available to meet
those costs. The flow of funds needs to be fed with this information.
4. Have there been any disadvantages using the inventory control system sued by your
company?
Inventory control methods has its advantages and its disadvantage. The major disadvantages of
inventory.
 Relative complexity especially in inventory management systems like JIT.
 Increased rate of fraud if the inventory system is compromised and the fraud can go
undetected especially if the fraud is committed by an employee within the inventory
department.
 Costly to run
 Bureaucracy in inventory control and management system
5.Are there any internal inventory management strategies used by your company?
There are three inventory management strategies used. This is by checking the;
1) Maximum Stock

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Certain companies consider it advisable to have a large inventory in specific cases such as:
2) Minimum stock (security)
When is a company interested in keeping its inventory level low?
3) Reorder level
6. Are there any external inventory management techniques used by your company?
Before choosing your inventory management strategy, remember that the central objective is to
ensure that the products arrive at their destination, that is, to the customers. And, of course, do
not forget something important: the improvement of your productivity and profitability (Mancini,
n.d.).
Bulk shipments:
It is a method that is characterized by the shipment of products in bulk, which guarantees that the
replacement of the same will be less than if it were done in a moderate way. The company does
not have to worry about missing articles in its distribution points; always (or almost always) are
available. It is ideal for those sectors of the economy with a high demand (Nahmias, 2011).
Dropshipping:
It is another of the most frequent inventory management strategies. Thanks to it we eliminate the
costs of keeping items or products in our hands waiting to be requested. This is achieved by
transferring the purchase order to our suppliers, who from that moment will take care of the
management of the units that are needed in each store.

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7. Are the strategies helpful in avoiding stock outs?
Yes, the strategies are important in avoiding stock outs for Pound land. Inventory management
strategies are important for the company in the following ways. Without a doubt, one of the most
pressing factors for organizations today is related to their inventory levels. The strategies help in
planning, organization and commitment that each one of the actors of the company acquires and
executes in a synchronized way and with a common objective (Stevenson, 2005). For example one
of the strategies is forecasting which in effect has a special impact on inventories, since those
products that are forecasted and not sold increase the level of inventory and those that are over-
sold reduce it but affect the level of service. So here the first step is to measure that accuracy of
the forecast to determine the level of assertiveness and focus on those products or line of
products that are significantly affecting the levels of both inventories and service (Donath, 2002).
So, the first strategy is to make the forecasts true predictive tools of demand in the market, to
move inventories according to that demand (Stevenson, 2005).
Another strategy is putting in place an inventory strategy. Poundland has the following as an
inventory strategy. Because someone at a time in the history of the organization so decided and
stayed as part of a culture and a process (Cheng, 2010). If there are products that are sold
constantly, with a constant demand and your supplier gives you 8 days of delivery time, why
save 30 days of inventory? You are incurring an unnecessary financial cost. In the maturity curve
of a product (basic marketing lesson) you will notice that there are new products, growing
products, mature products and products in decline or output (Waller and Esper, 2014).

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You can not establish the same inventory policies for all products, on the one hand the launch of
a new product, it will have a very erratic demand behavior, a mature one will have a very stable
behavior and the output will have a downward trend, Imagine that in these last products insists
on keeping 30 days of inventory !, they will end up obsolete and they will be the perfect
candidates for auctions and rebates with the consequent financial loss. Therefore, the second
strategy must be focused on inventory policies, paying special attention to levels and fluctuations
in demand.
8.Are the inventory management strategies helpful in balancing between profits and stock-
out. If yes, how?
Inventory management strategies are helpful in the following ways;Inventory optimization is key
part of the business if it wants to balance between stock outs and profits. The CFO is responsible
for ensuring that sound inventory management strategies are put in place that adhere to the sound
financial goal of the company (Waller and Esper, 2014). Most financial leaders heavily rely on
inventory management systems to run inventory analysis and financial reports. These strategies
include inventory purchasing that involves negotiating for a price that ensure that there is a profit
after the inventory is sold.
Another way is that part of the strategies is acquiring inventory in a timely manner to ensure that
there is no interruption of distribution of the stock to the customer. The time factor also includes
purchasing inventory at a time that the price is low so that they can sell at a higher price. This
means that the company is able to get profit and mitigate against the risk of stock outs.
Forecasting is another way of balancing between profits and stock outs, in that the company is

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able to forecast on the time that a stock will be required and also so that it may not inturupt the
company’s cash flow.
All the mentioned costs play an important role in the application models of inventory
management. Due to this, it is necessary to analyze all the costs before including them in an
inventory management model.First the demand, because it is difficult to determine it. The most
important characteristics are the size and frequency of orders, seasonality, dependence and
independence, the possibility of not being able to meet demand.
On the other hand, in terms of costs these depend on the unit value of the item in inventory and
also the opportunity cost, as mentioned above the most important costs are: cost of supply, cost
of storage, and costs associated with the unsatisfied demand (Waller and Esper, 2014).
Finally, the terms refer to the waiting time or delivery time, time dedicated to administrative
work, time of transfer of the order to the supplier, time that the supplier delays in preparing the
order, time of transport of the order and time in that the office is delayed.
9.Would you like to share other methods of inventory management techniques used by
your company
 First in first Out FIFO
 Set par levels
 Contigency planning
 Regular auditing
 Accurate Forecasting
 JIT

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 EOQ
10. How long has this store been running?
The store was founded in 1990 so it has been running for 28 years.
11. What are the number of employees in the store?
The store has 18,00 employees
12. Is there any training received from Poundland regarding inventory control?
Yes. Many companies give training on inventory control , Poundland also offers training to some
of its employees regarding inventory control.

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References
Bragg, S. (2015). Inventory management. Centennial, Colo.: AccountingTools, Inc.
Cheng, T. (2010). Postponement strategies in supply chain management. New York: Springer.
Donath, B. (2002). The IOMA handbook of logistics and inventory management. New York: J.
Wiley and Sons.
Mancini, M. (n.d.). Time management.
Mercado, E. (2008). Hands-on inventory management. New York: Auerbach Publications.
Motamen-Samadian, S. (2006). Global stock markets and portfolio management. Basingstoke
[England]: Palgrave Macmillan.
Nahmias, S. (2011). Perishable Inventory Systems. Boston, MA: Springer Science+Business
Media, LLC.
Stevenson, W. (2005). Operations management. Boston: McGraw-Hill.
Waller, M. and Esper, T. (2014). The definitive guide to inventory management. Upper Saddle
River, New Jersey: Pearson Education, Inc.