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Inventory Management



  • To develop, enhance and maintain our strong relationship with our employees, suppliers and the other functional areas.

  • Provide the organization with the appropriate supplies in the right quantity and in good condition,  in order secure a non-interrupted operations & to maintain our competitive advantage  and further improve our renowned corporate image

  • Provide an uninterrupted flow of materials & supplies required to operate the organization

  • Keep inventory investment & loss at a minimum

  • Maintain adequate quality standards

  • Provide the required data in the right time for planning & control of:

  • Production planning & Control

  • purchasing plans

  • Budgeting, Costing & cost analysis

  • Maximize Customer Service

  • Minimize Inventory costs

  • Investment costs to have an inventory (Asset)

  • Costs related to holding inventory (Expenses) Spoilage, Warehouse Space, Counting Errors, Theft

  • Maximizing efficiency of Purchasing and Production

  • Minimizing total cost of Logistics

  • Maximizing Profit

  • Key decisions include…

  • How much to order

  • When to reorder

  • Where to hold inventory

How much at each location

  • Who should own and/or manage inventory

  • When to substitute transportation for inventory

  • How to balance service and cost

  • Raw materials and components

  • Work in Process - partially completed goods ( WIP)

  • Semi-finished Goods

  • Finished Goods

  • Distribution Inventory  (Pipeline Inventory)

  • Consigned stock

  • Maintenance, Repair and Operating Supplies (MRO)

  • All-Time Stock

The stock resulting from the assessment of an all-time requirement and delivery of an all-time order. If necessary, controls can be set for such stock to avoid consumption of items for reasons over and above those for which usage was predicted.

  • Anticipation Stock (Seasonal)

 Inventory held in order to be able to:

  • Satisfy a demand with seasonal fluctuations with a production level that does not fluctuate at all or that varies to a lesser extent than the demand

  • Cope with erratic production or deficiencies in production capacity

  • Available Stock (Free Stock)

The stock available to service immediate demand

  • Shrinkage

The decrease in inventory quantities over time from loss or theft.

  • Contingency Stock

The stock of goods held by an external customer which is still the property of the supplier but for which payment is only made when stock is sold or used by the customer

  • Consumable

A classification of stock used to describe items or products that are totally consumed in use eg paper, oil, grease etc

  • Cycle Stock

results from the replenishment process and is required in order to meet demand under conditions of certainty

  • Decoupling stock

 Work in Process Buffers

  • Dead stock

no current demand

  • Economic Stock

The sum of the physical stock and the goods ordered but not yet received, minus the goods sold but not yet delivered for which a company carries risk in respect of a drop in price and unmarketability

  • Effective Stock

The sum of the physical stock of a particular product and the quantity of that product ordered for a particular period, but not yet received

  • Hedging (Gambling) stock

Similar to Anticipation stock but involves more risk

  • In Process or In Transit Stock (Pipeline) Stock

en route from one location to another

  • Lot Size Inventory

Inventories which are maintained whenever quantity price discounts, shipping costs, or set-up costs, etc., make it more economical to purchase or produce in larger lots than are needed for immediate purposes.

  • Maximum Stock

The upper limit, expressed in quantitative, financial or time-based terms, to which the stock of an item should normally be allowed to rise.

  • Minimum Stock

A control limit within a stock control system which could indicate the point at which an order should be placed, or indicate if stocks are too low, for a specific item.

  • Obsolete Stock

Stock held within an organization where there is no longer any organizational reason for holding the stock

  • Physical Inventory

The determination of inventory quantity by actual count. Physical inventories can be taken on a continuous, periodic, or annual basis.

  • Quarantine Stock

On-hand stock which has been segregated and is not available to meet customer requirements.

  • Redundant Stock

Parts used in manufacture which have been removed from a bill of material by technical change or modification action. Redundant parts may also be obsolete if they are no longer used for any other application in the inventory concerned

  • Reserved Stock

Material on hand or on order which is assigned to requisitions for specific future requirements.

  • Safety or buffer stock

held in excess of cycle stock because of uncertainty in demand and/or lead time

  • Speculative stock

held for reasons other than satisfying current demand

  • Seasonal stock

held until demand season

  • Promotional stock

accumulate and hold for quick response to marketing campaigns

  • Speculative stock

held for reasons other than satisfying current demand

  • Strategic Stock

The stock of goods of essential importance for the continuation of the production process and which is built up in order to compensate for long hold-ups of incoming goods (caused by strikes and political difficulties etc. in a particular country or region).

  • Stock Norm (Norm Stock)

A ratio of stock to e.g. sales, set as a standard and expressed as a percentage, or as a factor or as a number' of days, weeks or months.

The stock norm is determined by taking into account the:

  • Safety stock.

  • Production batch stock or shipment batch stock.

  • Production batch stock or shipment batch stock.

  • Normal seasonal stock.

  • Normative pipeline stock.

  • Stock on Order

  1. Inventory levels

  • Net stock

  • Net inventory position

  1. Stockouts

  • Backorders

  • Substitutions

  • Lost sales

  • Shortage factor

  1. Planning parameters

  • Unit selling price

  • Unit inventory value

  • Inventory carrying rate

  • Purchase order cost

  • Setup cost

  1. Financial terms

  • Average inventory value

  • Inventory carrying cost

  • Lost sales cost

  • Total policy costs

  1. Demand terms

  • Annual demand

  • Forecast annual demand

  • Lead time

  • Lead time demand

  • Forecast lead time demand

  • Standard deviation of lead time demand

  1. Decision variables

  • EOQ

  • Unit fill rate

  • Safety stock levels

  • Reorder Point

  • Order-up-to-level

  • Review time period

  • Average aggregate inventory value

        Average value of the total inventory in a given timeframe, usually yearly

  • Weeks of supply =


  • Inventory turnover (turns) =

  1. Costs

  • Cost of Capital Invested in Stock

  • Physical Cost to keep and protect the item

  • Replenishment cost

  • Stock Out Costs

  1. Demand

  • MRP & Demand Forecasting

  • Type of Demand (bulk or individual items)

  • Frequency of use

  • Regularity of use

  1. Replenishment

  • Order lead-time

  • Nature of Delivery:

  • partial shipment

  • frequency of shipment

  • type of unit loads

ABC Classification (Pareto Analysis)

  •  Class A: Approx. 20% of Total Items account for 80% of Stock Value   (Individual Control)

  • Class B: Approx. 30% of Total Items account for 10% of Stock Value  (Control on Family or Groups basis)

  •  Class C: Approx. 50% of Total Items account for 10% of Stock Value (Controlled by a minimum expenditure system)

Other classifications and their stakeholders


Main Stakeholder

ABC Classification (Pareto Analysis)


FSN Classification (Fast – Slow- Nonmoving)

Material Requirement Planning

HML Classification (high – Medium – Low value)


VED Classification (Vital – Essential – Desirable)

Requesting Department

SDE Classification (Scarce – Difficult – Easy)


SOS Classification ( Seasonal – Off- Seasonal)


GUS Classification (General – Unique – Specific)

Material Requirement Planning

JIT (Just in Time) Procurement & Inventory Management Systems

Material Requirement Planning

Category Management & Interchangeability

Material Requirement Planning  - Maintenance


  • A system to Track of the Inventory on hand and on order

  • A reliable Forecast of Demand includes an identification of possible forecast error

  • Knowledge of Lead Time and lead time Variability

  • Reasonable estimates of Inventory Holding Costs, Ordering Costs and shortage Costs

  • A Classification system for Inventory items