I

nvent
orymanagementt
echni
ques
1.Bul
kShi
pment
s

2.ABCI
nvent
oryManagement

3.Backor
der
ing

4.Justi
nTi
me(
JIT)

5.Consi
gnment

6.Dr
opshi
ppi
ngandCr
oss-
docki
ng

7.Cy
cleCount
ing

I
nthi
ssect
ionwewi
l
lexpl
oret
hemostcommoni
nvent
orymanagementt
echni
ques
usedbybusi
nessesofal
lsi
zes 
—al
ongwi
tht
hei
nvent
oryhol
dingcost
sandpot
ent
ial
pr
ofi
tsoft
hemostpr
omi
nent
.

Keepi nmindthatyou’
l
lprobabl
yneedamixofdif
fer
ent
techniquest
odev el
opthemostcomprehensi
vest
rat
egyfory
our
business.
1.Bul
kshi
pment
s

Thi
smet
hodbanksont
henot
iont
hati
tisal
mostal
way
scheapert
opur
chaseandshi
p
goodsi
nbul
k.Bul
kshi
ppi
ngi
soneoft
hepr
edomi
nantt
echni
quesi
nthei
ndust
ry,
whi
ch
canbeappl
i
edf
orgoodswi
thhi
ghcust
omerdemand.

Thedownsi
det
obul
kshi
ppi
ngi
sthaty
ouwi
l
lneedt
olayoutext
ramoneyon
war
ehousi
ngt
hei
nvent
ory
,whi
chwi
l
lmostl
i
kel
ybeof
fsetbyt
heamountofmoney
sav
edf
rom pur
chasi
ngpr
oduct
sinhugev
olumesandsel
l
ingt
hem of
ffast
.

Pr
osofbul
kshi
pment
s
 Hi
ghestpot
ent
ial
forpr
ofi
tabi
l
ity

 Fewershi
pment
smeanl
owershi
ppi
ngcost
s
 Wor
kswel
lforst
apl
epr
oduct
swi
thpr
edi
ctabl
edemandandl
ongshel
fli
ves

Consofbul
kshi
pment
s
 Hi
ghestcapi
tal
riskpot
ent
ial

 I
ncr
easedhol
dingcost
sforst
orage

 Di
ff
icul
ttoadj
ustqui
ckl
ywhendemandf
luct
uat
es

2.ABCi
nvent
orymanagement

ABCi
nvent
orymanagement
 i
sat
echni
quet
hat
’sbasedonput
ti
ngpr
oduct
sint
o
cat
egor
iesi
nor
derofi
mpor
tance,
wit
hAbei
ngt
hemostv
aluabl
eandCbei
ngt
hel
east
.
Notal
lpr
oduct
sar
eofequal
val
ueandmor
eat
tent
ionshoul
dbepai
dtomor
epopul
ar
pr
oduct
s.

Al
thought
her
ear
enohar
d-and-
fastr
ules,
ABCanal
ysi
sleansonannual
consumpt
ion
uni
ts,
inv
ent
oryv
alue,
andcostsi
gni
fi
cance.Cat
egor
iest
ypi
cal
l
ylooksomet
hingl
i
ke:

Cat
egor
yA

I
temsofhi
ghv
alue(
70%)
andsmal
li
nnumber(
10%)

Cat
egor
yB

I
temsofmoder
atev
alue(
20%)
andmoder
atei
nnumber(
20%)

Cat
egor
yC

I
temsofsmal
lval
ue(
10%)
andl
argei
nnumber(
70%)

Thekeyi
stooper
ateeachcat
egor
ysepar
atel
y,par
ti
cul
arl
ywhensel
ect
ivecont
rol
,
al
l
ocat
ionoff
unds,
andhumanr
esour
cesar
erequi
red.

Pr
osofABCi
nvent
orymanagement
 Ai
dsdemandf
orecast
ingbyanal
yzi
ngapr
oduct
’spopul
ari
tyov
ert
ime
 Al
l
owsf
orbet
tert
imemanagementandr
esour
ceal
l
ocat
ion

 Hel
psdet
ermi
neat
ier
edcust
omerser
viceappr
oach

 Enabl
esmor
eaccur
atei
nvent
oryopt
imi
zat
ion

 Fost
ersst
rat
egi
cpr
ici
ng

ConsofABCi
nvent
orymanagement
 Coul
dignor
epr
oduct
sthatar
ejustst
art
ingt
otr
endupwar
ds

 Of
tenconf
li
ctswi
thot
heri
nvent
oryst
rat
egi
es

 Requi
rest
imeandhumanr
esour
ces
3.Backor
der
ing

Backor
der
ing 
ref
erst
oacompany
’sdeci
siont
otakeor
der
sandr
ecei
vepay
ment
sfor
out
-of
-st
ockpr
oduct
s.I
t’
sadr
eam f
ormostbusi
nessesbuti
tcanal
sobeal
ogi
sti
cal
ni
ght
mar
e…i
fyou’
renotpr
epar
ed.

Whent
her
e’sj
ustoneout
-of
-st
ocki
tem,
it’
ssi
mpl
yacaseofcr
eat
inganewpur
chase
or
derf
ort
hatonei
tem andi
nfor
mingt
hecust
omerwhent
hebackor
der
edi
tem wi
l
l
ar
ri
ve.Wheni
t’
stensorev
enhundr
edsofdi
ff
erentsal
esaday
,pr
obl
emsbegi
nto
mount
.
Nonet
hel
ess,
enabl
i
ngbackor
der
smeansi
ncr
easedsal
es,
soi
t’
saj
uggl
i
ngactt
hat
manybusi
nessesar
ewi
l
li
ngt
otakeon.

Asagener
alrul
e,t
hebiggert
heit
em value(phy
sicall
yand
monet
ari
ly
),t
hemor e“
deli
ver
ytol
erance”yougetfrom cust
omer
s.

I
fyou’
reasmal
lret
ail
er,
itmaynotbef
easi
blet
ori
skov
erst
ocki
ng.I
nthi
scase,
you
mi
ghtconsi
derl
abel
i
ngt
hei
tem’
s“Buynow”but
tonas“
Pre-
order
”or“
Gety
our
swheni
t
comesbacki
nst
ock.
”Thi
scr
eat
esar
easonabl
eexpect
ati
onf
orcust
omer
sthati
twi
l
l
t
akeabi
tlongert
oar
ri
ve.

Al
ter
nat
ivel
y,somebusi
nessesr
unwi
tha“
no-
stock”appr
oachwhi
chi
nvol
v t
es aki
ng
onl
ybackor
der
s unt
ilt
hey
’vegener
atedenoughsal
est
othenpl
aceal
argebul
kinor
der
wi
thasuppl
i
er.

Pr
osofbackor
der
ing
 I
ncr
easedsal
esandcashf
low

 Mor
efl
exi
bil
i
tyf
orsmal
lbusi
nesses

 Lowerhol
dingcost
sandl
owerov
erst
ockr
isk

Consofbackor
der
ing
 Hi
gherr
iskofcust
omerdi
ssat
isf
act
ion

 Longerf
ulf
il
lmentt
imes
4.Justi
nTi
me(
JIT)

JustI
nTi
me(
JIT)i
nvent
orymanagement
 l
ower
sthev
olumeofi
nvent
oryt
hata
busi
nesskeepsonhand.I
tisconsi
der
edar
iskyt
echni
quebecausey
ouonl
ypur
chase
i
nvent
oryaf
ewday
sbef
orei
tisneededf
ordi
str
ibut
ionorsal
e.

JI
Thel
psor
gani
zat
ionssav
eoni
nvent
oryhol
dingcost
sbykeepi
ngst
ockl
evel
slowand
el
i
minat
essi
tuat
ionswher
edeadst
ock-essent
ial
l
yfr
ozencapi
tal
-si
tsonshel
vesf
or
mont
hsonend.
Howev
er,
ital
sor
equi
resbusi
nessest
obehi
ghl
yagi
l
ewi
tht
hecapabi
l
ityt
ohandl
ea
muchshor
terpr
oduct
ioncy
cle.

I
fyou’
reconsi
deri
ngadopti
ngaJustinTimeinventor
y
managementstr
ategy
,askyour
sel
fthefol
lowing:
 
 Ar
emysuppl
i
ersr
eli
abl
eenought
ogetpr
oduct
stomeont
imeev
eryt
ime?

 DoIhav
eat
hor
oughunder
standi
ngofcust
omerdemand,
sal
escy
cles,
andseasonal
f
luct
uat
ions?

 I
smyor
derf
ulf
il
lmentsy
stem ef
fi
cientenought
ogetor
der
stocust
omer
sont
ime?

 Doesmyi
nvent
orymanagementsy
stem of
fert
hef
lexi
bil
i
tyneededt
oupdat
eand
managest
ockl
evel
sont
hef
ly?

Pr
osofJI
T
 Loweri
nvent
oryhol
dingcost
s

 I
mpr
ovedcashf
low

 Lessdeadst
ock

ConsofJI
T
 Pr
obl
emsf
ulf
il
li
ngor
der
sont
ime

 Mi
nimal
room f
orer
ror
s

 Ri
skofst
ockout
s
5.Consi
gnment

Consi
gnment
 i
nvol
vesawhol
esal
erpl
aci
ngst
ocki
nthehandsofar
etai
l
er,
butr
etai
ning
owner
shi
punt
ilt
hepr
oducti
ssol
d,atwhi
chpoi
ntt
her
etai
l
erpur
chasest
heconsumed
st
ock.Ty
pical
l
y,sel
l
ingonconsi
gnmenti
nvol
vesahi
ghdegr
eeofdemanduncer
tai
nty
f
rom t
her
etai
l
er’
spoi
ntofv
iewandahi
ghdegr
eeofconf
idencef
rom t
hewhol
esal
er’
s
poi
ntofv
iew.

Forr
etai
l
ers,
sel
l
ingonconsi
gnmentcanhav
esev
eral
benef
it
s,i
ncl
udi
ngt
heabi
l
ityt
o:
 Of
ferawi
derpr
oductr
anget
ocust
omer
swi
thoutt
yingupcapi
tal

 Decr
easel
agt
imeswhenr
est
ocki
ngpr
oduct
s

 Ret
urnunsol
dgoodsatnocost

Whi
l
emostoft
her
iski
nsel
l
ingonconsi
gnmentf
all
sont
hewhol
esal
er,
ther
ear
est
il
la
numberofpot
ent
ial
adv
ant
agesf
ort
hesuppl
i
er:

 Testnewpr
oduct
s

 Tr
ansf
ermar
ket
ingt
other
etai
l
er

 Col
l
ectusef
uli
nfor
mat
ionaboutpr
oductper
for
mance

I
fyouconsi
dersel
l
ingonconsi
gnment—asei
therar
etai
l
erorwhol
esal
er—sett
erms
cl
ear
lyr
egar
dingt
he:

 Ret
urn,
frei
ght
,andi
nsur
ancepol
i
cies

 How,
when,
andwhat
 cust
omer
 dat
aisexchanged

 Per
cent
ageoft
hepur
chasepr
icer
etai
l
erwi
l
lbet
aki
ngassal
escommi
ssi
on

6.Dr
opshi
ppi
ngandcr
oss-
docki
ng

Thi
sinv
ent
orymanagementt
echni
queel
i
minat
est
hecostofhol
dingi
nvent
ory
al
toget
her
.Wheny
ouhav
eadr
opshi
ppi
ngagr
eement
,youcandi
rect
lyt
ransf
er
cust
omeror
der
sandshi
pmentdet
ail
stoy
ourmanuf
act
urerorwhol
esal
er,
whot
hen
shi
pst
hegoods.

Si
mil
art
odr
opshi
ppi
ng,
cross-
docki
ngi
sapr
act
icewher
eincomi
ngsemi
-t
rai
l
ert
rucks
orr
ail
roadcar
sunl
oadmat
eri
alsdi
rect
lyont
oout
boundt
rucks,
trai
l
ers,
orr
ail
car
s.

Essent
ial
l
y,i
tmeansy
oumov
egoodsf
rom onet
ranspor
tvehi
cledi
rect
lyont
oanot
her
wi
thmi
nimal
ornowar
ehousi
ng.Youmi
ghtneedst
agi
ngar
easwher
einboundi
tems
ar
esor
tedandst
oredunt
ilt
heout
boundshi
pmenti
scompl
ete.Al
so,
youwi
l
lrequi
rean
ext
ensi
vef
leetandnet
wor
koft
ranspor
tvehi
clesf
orcr
oss-
docki
ngt
owor
k.

7.I
nvent
oryCy
clecount
ing

Cy
clecount
ing 
ori
nvol
vescount
ingasmal
lamountofi
nvent
oryonaspeci
fi
cday
wi
thouthav
ingt
odoanent
ir
emanual
stockt
ake.I
t’
sat
ypeofsampl
i
ngt
hatal
l
owsy
ou
t
oseehowaccur
atel
yyouri
nvent
oryr
ecor
dsmat
chupwi
thwhaty
ouact
ual
l
yhav
ein
st
ock.

Thi
smet
hodi
sacommonpar
tofmanybusi
nesses’
inv
ent
orymanagementpr
act
ices,
asi
tul
ti
mat
elyhel
psensur
ethatcust
omer
scangetwhatt
heywant
,whent
heywanti
t,
whi
l
ekeepi
ngi
nvent
oryhol
dingcost
sasl
owaspossi
ble.

Pr
osofcy
clecount
ing
 Mor
eti
me-andcost
-ef
fi
cientt
handoi
ngaf
ull
stockt
ake
 Canbedonewi
thoutdi
srupt
ingoper
ati
ons

 Keepsi
nvent
oryhol
dingcost
slow

Consofcy
clecount
ing
 Lesscompr
ehensi
veandaccur
atet
hanaf
ull
stockt
ake

 Maynotaccountf
orseasonal
i
ty

Bestpr
act
icesf
orconduct
ingani
nvent
orycount
 

Howof
teny
oudoacy
clecountandhowmuchst
ocky
oucountwi
l
ldependont
het
ypes
ofpr
oduct
syousel
landt
her
esour
cesaty
ourdi
sposal
.Forexampl
e,y
oumi
ghtdo
an 
ABCi
nvent
oryanal
ysi
s t
odet
ermi
ney
ourcl
assApr
oduct
s,anddoacy
clecounton
y
ourmosthi
gh-
val
uei
temsmor
efr
equent
lyt
hany
ourot
heri
tems.

Regar
dlessofy
ourspeci
fi
cappr
oacht
oinv
ent
orycount
s,her
ear
esomebestpr
act
ices
t
ofol
l
ow:

 Countonecat
egor
yatat
ime 
–Ideal
l
y,y
ouwantt
obeabl
etocy
clet
hroughy
our
ent
ir
einv
ent
oryonaper
iodbasi
s.I
t’
sbestt
ofocusononecat
egor
yatat
imesoy
ou
cancountef
fi
ci
ent
lydur
ingbusi
nesshour
sandnotbei
mpededbyoper
ati
onal
downt
ime.

 Choosecountcat
egor
iesbasedon 
seasonal
it
y –Theai
m ofi
nvent
orycount
ingi
sto
beabl
etor
ect
if
yanydi
spar
it
iesi
ninv
ent
oryasandwhent
heyhappen.I
t’
sbestt
o
countpr
oduct
swhent
hey
’reatt
hei
rpeakt
oensur
eyoucanf
ixanyi
ssues
i
mmedi
atel
y.

 Mi
xupy
ourcy
clecountschedul
e –I
t’
sanunf
ort
unat
ereal
i
tyt
hat
 i
nvent
ory
shr
inkage 
i
ssomet
imesduet
ost
afft
hef
t,soai
mtov
aryy
ourschedul
etodet
er
empl
oyeesf
rom “
gami
ngt
hesy
stem.
”

Ty
pesofi
nvent
orycy
clecountpr
ocedur
es

Ther
ear
ethr
eemai
nty
pesofi
nvent
orycy
clecount
sthaty
oucanuse:

 Cont
rol
groupcy
clecount
ing 
–Thi
sty
peofcy
clecount
ingf
ocusesoncount
ingt
he
samei
temsmanyt
imesov
erashor
tper
iod.Ther
epeat
edcount
ingr
eveal
ser
ror
sin
t
hecountt
echni
que,
whi
chcant
henber
ect
if
iedt
odesi
gnanaccur
atecount
pr
ocedur
e.

 Random sampl
ecy
clecount
ing 
–Ify
ourwar
ehousehasal
argenumberofsi
mil
ar
i
tems,
youmi
ghtr
andoml
ysel
ectacer
tai
nnumberofi
temst
obecount
eddur
ing
eachcy
clecount
.Thi
shel
psr
educet
hedi
srupt
ionofanyonecat
egor
yatonce,
meani
ngy
oucancar
ryoutacountdur
ingbusi
nesshour
s.

 ABCcy
clecount
ing 
–Asment
ionedabov
e,ABCcy
clecount
ingusest
heABC
 i
nvent
orymanagementt
echni
queandPar
etopr
inci
plet
ocl
assi
fyi
temsi
nA,
BorC
cat
egor
iesbasedonv
alue.Wi
tht
hisappr
oach,
Ait
emsar
ecount
edmor
efr
equent
ly
t
hanBandCi
tems.

I
nvent
orycy
clecount
ingi
nther
eal
wor
ld

I
KEA 
i
sagr
eatexampl
eofabusi
nesst
hatusesbot
hasophi
sti
cat
ed 
inv
ent
ory
managementsy
stem 
andspor
adi
ccy
clecount
stoopt
imi
zei
nvent
ory
.

Usi
ngt
hecompany
’spr
opr
iet
aryi
nvent
orysy
stem,
on-
sit
elogi
sti
csmanager
scanv
iew
t
hei
rst
ore’
sst
ockl
evel
sandmoni
toranydi
scr
epancyi
nexpect
edsal
es(
uni
quet
oeach
st
ore)v
ersusi
nvent
oryl
evel
s.

Forexampl
e,l
et’
ssayt
hatI
KEA’
sMALM bedf
ramehasbeensel
l
ingmuchsl
owert
han
expect
ed.I
nthi
scase,
thel
ogi
sti
csmanagercanmanual
l
ycheckandconf
ir
mthest
ock
oft
hebedf
rame.Thi
smeansl
ogi
sti
csmanager
sonl
yneedt
ocy
clecounti
fthesy
stem
cat
chesadi
scr
epancy
.

AV