Contents

1. Introduction..................................................................................................................................... 1
2. Scope............................................................................................................................................... 1
3. Measurement of Inventories............................................................................................................ 1
4. Receiving and Inspection process for SSKU...................................................................................... 2
5. Goods received note........................................................................................................................ 4
Abstract
Goods Receive Note Format................................................................................................................
This inventory, warehouse & 4logistic
manual provides overall guidance’s
6. Storage............................................................................................................................................. 5
for warehouse operation and inventory
7. Issuance...........................................................................................................................................
management; that includes receiving 7
inventory, storage, distribution,
8. Inventory Count...............................................................................................................................
inventory tracking, replenishment 7 and
keeping costs & errors to minimum.
9. Inventory Records............................................................................................................................ 8
The policy manual has been designed
10. Obsolete /Expired Stock...............................................................................................................
and to guide logistic team 8 and
implement proper warehouse
11. Access Control..............................................................................................................................
management systen within the 9 sister
12. concerns of Shikhar Organization
Bin Card........................................................................................................................................ 9
Limited (SOL).
Bin Card Form.................................................................................................................................... 10
13. The manual has been drafted11in three
Sample Forms and Formats........................................................................................................
parts; i) Warehouse Management, ii)
Inventory Management& iii) Logistic
SHIKHAR ORHANIZATION Management. Various forms and
format provided in the manual ensures
the smooth implementation and

LIMITED – WAREHOUSE,
operation of this system.

[Course title]

INVENTORY& LOGISTIC
MANUAL
[Logistic Team]
Contents
Introduction.......................................................................................................................................... 2
Logistic & Inventory Management....................................................................................................... 2
Formation of Logistic Department....................................................................................................... 2
Definition.............................................................................................................................................. 3
Warehouse Management System........................................................................................................ 5
Principles of Warehouse Management................................................................................................. 5
Warehouse Management Processes..................................................................................................... 6
Goods receiving process of SOL........................................................................................................... 6
Goods Receive Note Format................................................................................................................ 7
Storing and Organizing inventory....................................................................................................... 10
Storage........................................................................................................................................ 10
Organizing inventory................................................................................................................... 11
Warehouse Management Fulfillment Strategies................................................................................ 15
Picking and Packing Process of Shikhar Organization Limited............................................................16
Picking and packing methods............................................................................................................. 18
Shipping/ Dispatching........................................................................................................................ 22
Warehouse Optimization.................................................................................................................... 22
Warehouse Monitoring & Reporting.................................................................................................. 23
Warehouse KPIs................................................................................................................................. 23
Inventory Management....................................................................................................................... 24
Inventory Records............................................................................................................................... 24
Valuation of Inventory......................................................................................................................... 25
Physical Counting Process................................................................................................................... 26
Obsolete /Expired Stock..................................................................................................................... 26
Access Control................................................................................................................................... 27
Bin Card............................................................................................................................................. 27
Inventory management formulas........................................................................................................ 28

1
Shikhar Organization Limited – Warehouse, Inventory & Logistic Manual

Status Draft Approved Date:

Authorized By Responsibility Chief Manager,Store department,

Finance department and logistic
officer
KedharNath Sharma

Chairman

Shikhar Organization Limited

Introduction
Logistic & Inventory Management
Logistics management is that part of the supply chain which plans, implements and controls the
efficient, effective forward and reverse flow and storage of goods, services and related information
between the point of origin and the point of consumption in order to meet customers' requirements.
As a part of your supply chain, inventory management includes aspects such as controlling and
overseeing purchases — from suppliers as well as customers — maintaining the storage of stock,
controlling the amount of product for sale, and order fulfillment.
Inventory management and logistics management are highly interlinked and interdependent
activities. Our business being Small-to-medium business (SMBs), often use Excel, Google Sheets, or
other manual tools to keep track of inventory databases and make decisions about inventory
management are unavoidable part of inventory management. With the growth of business more
dedicated Warehouse Management System (WMS) are needed. However in short we do not already
see the need of heavy investment on WMS. We can increase economy & efficiency of warehouse
operation through the effective utilization of available general-purpose tools and software’s.

Logistic Department and its function

Logistic department has been formed at Shikhar Organization Limited (SOL), to improve the
economy, efficiency and effectiveness of organization through efficient management and handling of
inventory, transportation, warehousing, material-handling, packaging, and security for all kind
inventory dealt by the organization. Most of the companies under SOL are either manufacturing units
or trading units. Whatever the nature of business is; all organization under SOL deals with inventory.
We buy inventory, we store inventory, we process inventory, we sell inventory, we invest in
inventory and we expect obtain return/ profit from sale of inventory. Our business is inventory
oriented and inventory is the life blood of our business.
Benefits of inventory management include;
 Reduce costs
 Optimize fulfillment
 Provide better customer service
 Prevent loss from theft, spoilage, and returns
 Proper valuation of inventory
In a broader context, inventory management also provides insights into your financial standing, customer behaviors
and preferences, product and business opportunities, future trends, and more.

2
Definition
Some of the basic terms used in the inventory management that needs to be understood are as
listed below;
Barcode scanner: Physical devices used to check-in and check-out stock items at in-house fulfillment
centers and third-party warehouses.
Bundles: Groups of products that are sold as a single product: selling a camera, lens, and bag as one
SKU.
Cost of goods sold (COGS): Direct costs associated with production along with the costs of storing
those goods.
Dead stock: Items that have never been sold to or used by a customer (typically because it’s
outdated in some way).
Decoupling inventory: Also known as safety stock or decoupling stock; refers to inventory that’s set
aside as a safety net to mitigate the risk of a complete halt in production if one or more components
are unavailable.
Economic order quantity (EOQ): EOQ refers to how much you should reorder, taking into account
demand and your inventory holding costs.
Holding costs: Also known as carrying costs; the costs your business incurs to store and hold stock in
a warehouse until it’s sold to the customer.
Inventories: include assets held for sale in the ordinary course of business (finished goods), assets in
the production process for sale in the ordinary course of business (work in process), and materials
and supplies that are consumed in production (raw materials).
Logistic Management: Logistics management is a supply chain management component that is used
to meet customer demands through the planning, control and implementation of the effective
movement and storage of related information, goods and services from origin to destination.
Logistics management helps companies reduce expenses and enhance customer service.
Landed costs: These are the costs of shipping, storing, import fees, duties, taxes and other expenses
associated with transporting and buying inventory.
Lead time: The time it takes a supplier to deliver goods after an order is placed along with the
timeframe for a business’ reordering needs.
Order fulfillment: The complete lifecycle of an order from the point of sale to pick-and-pack to
shipping to customer delivery.
Order management: Backend or “back office” mechanisms that govern receiving orders, processing
payments, as well as fulfillment, tracking and communicating with customers.
Purchase order (PO): Commercial document (B2B) between a supplier and a buyer that outlines
types, quantities, and agreed prices for products or services.
Pipeline inventory: Any inventory that is in the “pipeline” of a business’ supply chain — e.g., in
production or shipping — but hasn’t yet reached its final destination.
Reorder point: Set inventory quotas that determine when reordering should occur, taking into
account current and future demand as well as lead time(s).

3
Retail: is the broadest catch-all term to describe business-to-consumer (B2C) selling. There are essentially two types of
retail separated by how and where a sale takes place.
 First, online retail (eCommerce) where the purchase takes place digitally.
 Second, offline retail where the purchase is physical through a brick-and-mortar storefront or
a salesperson.

Safety stock: Also known as buffer stock; inventory held in a reserve to guard against shortages.
Sales order: The transactional document sent to customers after a purchase is made but before an
order is fulfilled.
Stock Management: Stock management is often used as another term for inventory management,
but it’s important to recognize the difference between “stock” and “inventory,” particularly for
companies involved in manufacturing products. Stock generally refers to finished product ready for
sale or distribution. Inventory, however, includes everything in the warehouse: raw materials,
materials that are in the process of being built into products and finished products (stock).
Stock-outs: not having enough items to fulfill customer order.
Supply Chain Management: Supply chain management (SCM) is the management and oversight of a
product from its origin until it is consumed.
SCM involves the flow of materials, finances and information. This includes product design, planning,
execution, monitoring and control. The goal of this process is to reduce inventory, increase
transaction speed and improve work flow with profit in mind.
Stock keeping unit (SKU): Unique tracking code (alphanumeric) assigned to each of your products,
indicating style, size, color, and other attributes.
Third-party logistics (3PL): Third-party logistics refers to the use of an external provider to handle
part or all of your warehousing, fulfillment, shipping, or any other inventory-related operation. Fourth
party logistic (4PL) takes this a step further by managing resources, technology, infrastructure, and full-
scale supply chain solutions for businesses.
Variant: Unique version of a product, such as a specific color or size.

Wholesale: On the other hand, refers to business-to-business (B2B) selling. Knowing the differences
and best practices of retail and wholesale is critical to success.

Warehouse Management: Warehouse management encompasses the principles and processes

involved in running the day-to-day operations of a warehouse. At a high level, this includes receiving
and organizing warehouse space, scheduling labor, managing inventory and fulfilling orders. 

4
Warehouse Management System
A warehouse management system (WMS) is a system that aims to simplify the complexity of
managing a warehouse. Often provided as part of an integrated enterprise resource planning (ERP)
suite of business applications, a WMS can support and help to optimize every aspect of warehouse
management. For example, a WMS can:
 Leverage data and automation to conduct demand analyses, forecast sales and create
efficient daily operating plans.
 Provide real-time insight into inventory location and quantity.
 Share data with other ERP modules or standalone software products, such as accounting
software and transportation management solutions, to increase the efficiency of business
operations.
 Monitor and report productivity to offer a deeper understanding of how efficiently your
warehouse is operating and where you can make improvements to warehouse geography
and optimize space.
 Create step by step directions to guide users through daily processes—such as receiving,
picking and packing orders—using predefined rules.

Principles of Warehouse Management

Understanding the general principles of warehouse management can help you focus your efforts to
optimize the way your warehouse operates. These principles include:
Know your purpose. A warehouse operation must first and foremost know its objectives. For
example, do your customers have specific delivery requirements? Does your inventory need
specialized storage? Additionally, all warehouse operations aim to use warehouse space, labor and
equipment as efficiently as possible.

Comprehensive control. Warehouse management involves coordinating complex processes involving

many moving parts: people, equipment, orders and inventory. Warehouse managers need to be able
to track each process in order to ensure it’s running smoothly and solve the problems that inevitably
occur. Quality control is critical to ensure orders are fulfilled accurately.

Flexibility and resilience. Warehouse managers have to be able to change plans on the fly, whether
it’s because materials have arrived damaged or because inclement weather is delaying shipments.
It’s also important to be able to adjust workflows to maximize efficiency, whether that involves
rearranging warehouse space or reimagining picking processes.

Customer focus. On-time delivery, with the correct product, is one of the most important metrics
when it comes to customer service and satisfaction. To deliver on time, you need to be able to fulfill
orders quickly and accurately.
Data-driven decision making. Even if every warehouse process appears to be running without a
hitch, it doesn’t mean processes are operating as efficiently as possible. A WMS can help you
pinpoint and analyze areas that need improvement.

5
Warehouse Management Processes
Warehouse management includes six core processes. Each process influences the efficiency of the
next, so every step must be optimized for the warehouse operation to run like a well-oiled machine:

Receiving. Check in and log incoming items. Verify that you’re receiving the right quantity, in the
right condition, at the right time.

Put-away. Move items from the receiving dock to their correct storage locations.

Storage. Safely store and logically arrange inventory to enable fast and accurate picking.

Picking. Collect the items needed to fulfill sales orders.

Packing. Prepare the picked items for shipment. They must be safely packed into the correct
packaging with an accurate packing slip.
Shipping/ Dispatching. Send out the finalized sales orders, ensuring that they are on the right
vehicle, at the right time, with the correct documentation, so customers receive their orders on time.

Goods receiving process of SOL

Warehouse receiving is not simply a matter of purchasing inventory and having it delivered to your
warehouse; rather, it involves several key steps that must be done right to ensure the right items and
quantity are being delivered and stored correctly. Here is an overview of a standard warehouse
receiving process to be used by Shikhar Organization limited;
Step 1: Pre-receiving activities
Before inventory are received, warehouse receiving staffs are to be informed about expected
quantity and arrival time of goods in advance so that proper space can be arranged in store. In most
case surprise delivery always creates anxiety and unmanaged item verification and storage. To
manage rapid handling of store item it can be suggested to vendors to arrange items in specific
packages or pallets with visible barcodes that can be used to pull shipment received using warehouse
management system (WMS).
Step 2: Unloading the cargo
The next step is to have warehouse receiving staff meet the shipper at a loading dock and unload the
necessary cargo. Receiving staff should be standing by to discuss questions or concerns regarding the
shipment with the delivery driver. 
Ideally, truck beds should be packed back-to-front in the reverse order of the delivery schedule so
that warehouse workers can unload their inventory immediately without having to move another
other cargo in the way. 
Depending on the size and volume of the cargo, unloading sometimes requires heavy lifting
equipment such as forklifts and pallet jacks. 
Step 3: Quality and quantity inspection
As the cargo is being unloaded, the warehouse staff checks the contents of each delivery, including
the quantity, the integrity of seals, the product codes, and the overall condition of the cargo to
ensure that what’s in the boxes matches what is listed on the warehouse receiving order (WRO) and
is expected to arrive.

6
 Stock counting and inspection can be time-consuming. To avoid hours at the loading dock, in case of
regular vendor with reputation, if the goods are sent on specified packs and pallets with item
barcodes as pre our specified request, warehouse staff may decide to count boxes or pallets at
receiving location, rather than counting individual items, or choose to perform periodic random
inspections. Or, we can use an inventory scanner system to automate this process where available.
Step 4: Goods Received Note (GRN)
Goods Received Note (GRN) is a document that represents the receipt of goods by customers. It also
knows as a delivery note, which is used as the evidence that goods are delivered and the customers
already received. Moreover, both suppliers and customers use GRN to compare between order and
delivery quantity.
Later on, the supplier will attach GRN with the invoice and send it to customers. It is a piece of strong
evidence to prove that goods already delivered. On the other hand, customers use this document to
record inventory and accounts payable as the invoice may arrive late and they need to record and
keep track of stock.
Goods received noted also being used within the internal company as well. The goods may be
transferred from factory to various warehouses in different locations. The construction material must
move from warehouse to construction site. In these circumstances, we use goods received note as
the supporting document in order to prevent fraud or error. Accounting departments will require it
for recording inventory transfer from place to place.

Goods Receive Note Format

Goods receive note has different format from one company to another one depend on their design,
but the main component remains the same. The relevant information for goods receive note include:
 Suppliers’ name
 Products detail such as name, type, size
 Delivery time and date
 Products’ Quantities
 Name and signature supplier’s representative
 Name and signature of receiver
 Purchase order number

Goods received note (GRN) shall be raised by storekeeper for all goods received after proper
inspection and verification with Challan, Packing List or Invoice. In case items are multiple and as per
delivery challan of supplier, storekeeper may decide to stamp goods received over the challan itself,
however the supporting document must always be available for future reference.

Name of the company

Address
Goods Receipt Note
GRN No: ………    
PO No: ………..    
Supplier: ………………………………………………………………………….   Challan No: ………..
Address: ………………………………………………………………………….   Date: …………………
PAN: …………………………………………..    
SN Product Received Qty. Remarks
1      
2      
3      
4      
5      
7
 6      
7      
8      
9      
10      
  Total    
       
Delivered By   Received By
       
……………………   …………………..
       

Step 3. Carefully examine each box, carton or piece for visible damage. If damage is visible, note it on
the delivery note, have the delivery agent/driver sign the copy. Also ensure that all cartons, packs or
units delivered have a manufacturer’s seal. If the seal is not there or is tampered with, ask for special
inspection by the end user--do not accept such a shipment before end user certification.
Step 4. Write a goods return note for all the items that fail inspection and arrange return and or
replacement with the supplier. Poor quality or damaged items should never be allowed inside the
storerooms. In case the damaged goods are received as per the goods return policy of the
organization store keepers are instructed to fulfill the specific goods return sheet as provided below
before receiving the damage return.

Name of the Company

Address

Damage Received Note

……..
Debit Note no . Party : _________________ Date: ___________  
Claim As per Debit Note Actual Received Handling Loss Transfer to (Qty) Damage Loss

R
a
t
e Amoun Qt Rat Amoun Amoun
S.N. Product UOM Qty Rate Amount Qty t y e t RM FG WIP Qty t

1 - - - - - - - - - - - - - - - -

2 - - - - - - - - - - - - - - - -

3 - - - - - - - - - - - - - - - -

4 - - - - - - - - - - - - - - - -

5 - - - - - - - - - - - - - - - -

6 - - - - - - - - - - - - - - - -

7 - - - - - - - - - - - - - - - -

8 - - - - - - - - - - - - - - - -

9 - - - - - - - - - - - - - - - -

10 - - - - - - - - - - - - - - - -

- Total - - - - - - - - - - - - - - -

………………… ………………… …………………

Prepared By Reviewed By Authorized By

8
Recording transaction in System
 Verify unit prices and check for accuracy of the invoice total.
 Ensure that corrections if any are made and verified with the procurement team and the
supplier.
 Errors or inconsistence in documents should immediately be communicated to procurement
and the supplier to allow correction within 48 hours, and finance to ensure payments to the
supplier are stopped before satisfactory resolution.
 Immediately after being fully satisfied that the delivered goods and documents are in order,
the stores staff should record goods receipt in the system (ERP).
 Goods Received Note (GRN) should be attached to the supplier invoice and delivery note and
sent to accounts for payment processing not later than one day after receipt of shipment.
Deliveries Direct to End User
 Sometimes goods are delivered direct to the end user because of their temperature
requirements, handling specifications, or are of a hazardous nature. In this case the
responsible person should submit delivery documents to the stores within 24 hours after the
delivery.
 The receiving officer must sign all documents accompanying the shipment, send originals to
the store and keep at least one copy. It is very important for the receiving person to
understand that his signature is the organization's formal acknowledgment of receipt of the
items and the organization's obligation to make payment for the items.

Supplies with Invincible Damage

 Where supplies are received and damage is not visible at the point of delivery but is
detected at later date, the damaged items should be isolated and an inspection report
written immediately detailing the nature of damage.
 This may happen in the case of equipment, machines, computers or other specialized goods
that are delivered sealed, and the defect is discovered at testing or installation.
 The procurement team should be informed by email to notify the supplier/carrier of the
damage and request further inspection from the supplier where applicable. The
Procurement team must contact the user to advise and seek advice regarding
replacement/reorder.
 After supplier/carrier/inspector has come and inspected the damage, prepare damage
report, and let both of you sign it. Write a Good’s Return Note, attach it to damage report
and make arrangements to return the damaged goods to the supplier.
 Make sure that damaged materials are not used or disposed of without permission by the
supplier.
 Do not return damaged items without written authorization from shipper/supplier time of
receipt and sent to the supplier through procurement for action.

9
Storing and Organizing inventory
Storage
The primary objective of storage is to protect the quality of the items, have enough stock on hand,
and prevent loss through spoilage and theft. Control over items in storage is established by assigning
responsibility to specific persons, maintaining proper storage conditions, and sound material
handling procedures. Minimum operating requirements for storage include:
 Immediately after receiving and inspection. All items should be placed in their respective
storage areas the same day.
 There should be a definite space in the storeroom for each item. In case of field stations, an
up-to-date stock card should be placed on top of each item or in a convenient place where it
can be accessed showing details of all transactions and the reorder level.
 All items should be stored according to their Lot/Batch numbers in a manner that will
facilitate issuing on a "first in-first out" FIFO and “first expiry first out” FEFO basis.
 Cartons/boxes should be marked according to date received; neatly organized, with the
oldest goods on top of stacks, and the most recently purchased goods at the bottom of
stacks. Labels, date-received markings must face right side up and out for identification.
 Inventory must be positioned to facilitate efficient handling and checking.
 Inventory must be clearly labeled for easy identification. Inventory tag/bin cards or inventory
labels may be used to identify each item and to aid in the physical verification of the items.
 Where practically possible, all items of the same type and reference must be stored together
as per the description on the inventory records.
 Inventory items must be kept safe from unfavorable weather conditions like excess heat,
rainfall, fire, theft, bugs, etc. The store should be waterproof, should make the provision of
adequate temperature for storing temperature sensitive goods, should have fire extinguisher
and should have CCTV covering whole area of store.
 Due diligence and care must be exercised to prevent damage of, or deterioration of
inventory.
 Whenever a change in the Inventory Controller occurs, an inventory count must be
conducted.
 An independent official shall be nominated in writing by the delegated authority to assist the
official handing and taking over with the checking of the inventory and any discrepancies.

Lists of items which are slow moving, expired, obsolete, and those with expiry dates of below six
months should be generated quarterly and forwarded to the store head for appropriate action.
 All items should be stored off of floor and aisles so that the floor can be swept and mopped.
The most frequently used items should be located near the door or where they can be easily
reached.
 Store heavy bulky items on the bottom and the lighter smaller items in high places.
 Half-full cartons should be clearly marked, and carefully stacked on top of full boxes.
 Drugs, reagents, acids and hazardous items should be isolated and kept in restricted areas to
comply with the recommended storage requirements and also to prevent spoilage,
contamination, and possible fire outbreak.
 Cold chain Items should be well organized in the cold room to provide air circulation; open
containers should be immediately closed to prevent contamination.
 Storage areas should be neat and free from dust and vermin by cleaning and spraying
regularly.
 All storage areas (dry, cold room) should be locked when unattended. No person other than
authorized stores staff, or cleaner should be allowed inside the storerooms.
 A system to closely monitor stock movement should be put in place to prevent both stock
outs and overstocking, and ensure there is enough stock on hand.
10
  Replenishments should be made timely based on reorder levels, safety stock and
consumption patterns.
 Quarterly Physical inventories must be performed and a reconciliation report of the
storeroom prepared at the end of each quarter to determine the effectiveness of physical
control and security.
 Annual Physical inventories for all stock items must be performed to determine the Unit’s
closing inventory
 Inventory must be insured.
Organizing inventory
Organize Floor Plan for Optimum Process Flow
If you’re in the design phase of your warehouse, you’re in luck, because you can set things straight
from the start. I know I said organization doesn’t have to start with an overhaul, and it doesn’t. This
can be a long-term goal if you find things don’t flow in your warehouse in the best way for your
business.
Now, take a step back and consider your current warehouse layout. An organized workspace should
provide a safe environment for your employees and be highly efficient. The flow should be set up in
the order of operations. For example, inventory comes in from Receiving and moves on to Storage
either in one or multiple zones based on storage method. Once orders have been picked, they are
packaged and sent to shipping and out the door.

 
Pro tip: get a pen and draw a line from where inventory comes into your facility, how it’s handled
and how it leaves. You’re hoping for a relatively straight line.
 
Poll your staff who work in the space on a daily basis. Are there small corners of the warehouse
which can be adjusted slightly to support their efforts? Enable your staff to speak up during this
process improvement. Keeping your employees safe and happy is highly beneficial to their
productivity and your overall success.

11
Stay Organized with Labels and Signage
This is an easy tip which you can implement immediately. Labeling inventory and work zones
throughout your warehouse will ensure organization and facility flow is maintained long term. Once
you’ve established your warehouse layout, labels will ensure employees know where to find things
and/or where they belong. This can be especially beneficial for new employees or in facilities that
utilize temp labor often.
 
Don’t stop at your inventory and work zones. Consider adding signage to any hazards or ceiling
restrictions to ensure employee safety. Replace labels and signage regularly, as needed, to reduce
errors or misplacing valuable inventory.
 
Provide Maps
Help your employees navigate the warehouse by providing maps. While labels and signage clearly
communicate what they need to know, maps can be especially beneficial for new or seasonal
employees with less experience in the facility. The faster people get to where they need to go, the
quicker they get the job done.
 
Review Storage Capacity
Now that everything has a home and is clearly labeled, it’s time to review your storage capacity,
which is the maximum amount something can hold. Using simple math, multiply height x width x
depth = storage capacity, in cubic feet.
If you’ve opted for traditional rack and shelving in your warehouse, how are the shelves spaced out?
Are they evenly spaced, leaving room at the top of your products?.
 
Classify Inventory
Inventory management accounts for just about everything physically in your warehouse. Without a
system in place to keep track of your assets, it can be difficult for your employees to do their jobs.
Categorizing inventory and using proper storage methods maximizes your existing facility and frees
up previously wasted space to increase capacity and improve efficiencies.

Start by classifying your inventory to ensure you’re organizing even your slowest moving items
accordingly. Profiling your stock keeping units (SKUs) should be supported by data. Take inventory of
what is currently in your warehouse (size, shape, quantity) and how often it moves or frequency of
picking. This will help you organize your inventory into categories: A, B, C and D also known as your
fast (A), medium (B), slow (C) and very slow (D) movers. Once this is charted (see below), cross
reference your documented SKU velocity with the amount of time it takes to pick those items, this
will tell you how much it costs to pick your inventory.

If you apply the Pareto Principle (80/20 rule) here, you could imagine it makes the most sense to
focus on the 20% of your inventory being picked 80% of the time. If that’s the case, you’d be missing
the improvement opportunity from the remaining 80% of your inventory which sits stagnant more
often than not.
 
12
Compartmentalize Inventory with Totes, Bins and Dividers
Storage devices make me happy because they promote organization of even the smallest items.
Whether you need to store nuts and bolts or pre-assembled kits, I can guarantee there is a tote or
bin to keep your items in order. Add labels and you just earned yourself a gold star! There are so
many companies selling totes…for a living. Crazy, right? Our expertise is in automated storage and
retrieval systems (ASRS) but we’ve expanded into the realm of storage boxes designed specifically for
our technologies. Read more about totes, bins and dividers and why they are important. 

Implement a Slotting Strategy

I don’t recommend trying to slot your inventory until after you’ve classified, compartmentalized and
labeled it. Slotting can’t be done without data. To increase employee picking productivity, slot your
inventory first by velocity. Since you’ve already classified your inventory, you know what your fast
and medium movers (A and B movers) are versus your slow to very slow movers (C and D movers).
Slot your fast and medium movers in the area or zone with the easiest access. Your slow and very
slow movers can find their place further away from the shipping area for example without suffering a
dip in productivity. Your employees will thank you if you reduce their walking distances from fast and
medium movers to the shipping zone.
Next, slot your SKUs by zone or technology. You’ll need the information about inventory size, shape
and weight here. Sometimes there are limitations based on what you need to store and what storage
methods you’re using.
Implement an Efficient Receiving Process
Do you have boxes piling up next to the receiving door? This screams disorganized warehouse to me!
Review your process for receiving inventory. The inventory coming in the door is just as important as
the inventory you’re shipping out. Designate an employee to manage receiving as they will be your
quality gate. Did you receive the correct quantity and was the shipment in good condition? They
should process the shipment accordingly and immediately store the items in your perfectly labeled
storage systems.
Document Your Returns Handling Procedures
In addition to your receiving process, don’t forget to factor in the returns handling process. While this
might be covered with receiving, outline all of the steps for employees to ensure returns are taken

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care of appropriately. If returns go missing, this is money out of your pocket. Keep your warehouse
efficient with a documented process.
Automate Storage for Maximum Capacity (Assess Storage Methods)
Tell me about your warehouse. Are you using traditional racks and shelving…automation…or a
combination of the two? This is a judgment free zone. I understand there are benefits and limitations
to all storage methods. Obviously, I’m a little biased.
There are plenty of storage methods to choose from. It’s important to talk to an expert to determine
if there’s opportunity to improve what you’re already working with. I will tell you, ASRS will protect
your inventory from damage and theft. Utilizing the vertical height in your facility, ASRS maximizes
storage capacity in 85% less floor space. Operating on the goods-to-person principle, ASRS delivers
items directly to an operator at an ergonomic workstation with the touch of a button.
Lean Your Inventory
Lean your inventory to align with just in time (JIT) practices. When there is less inventory on hand,
there is less to organize. Only keep what is essential to prevent overstocking inventory. Of course, it
can be helpful to have some safety stock on hand but use data to determine the appropriate
quantities. This will keep your warehouse operating at high efficiency and deliver the service your
customers expect.
Organize Safety Stock
Don’t forget to leave room for safety stock. This is extra inventory you have on hand in buffer storage
to avoid shortages. To ensure you always have adequate inventory levels to accommodate
unpredictable spikes, designate a location for this safety stock. This reduces the likelihood of
inventory being misplaced.
Implement Cycle Counting
No one likes big year end physical inventory. Keep track of your inventory regularly with cycle
counting. Whether you cycle count weekly, monthly or even quarterly, if you keep track of your
inventory throughout the year you can eliminate the need for a costly year end inventory count. This
helps you maintain accurate inventory levels and supports your organization practices on a
continuous basis.
Adopt a Warehouse Management System
Warehouse Management Systems (WMS) provide to support many of these warehouse organization
ideas. With data from your WMS, you can properly classify and slot inventory, determine proper
storage methods, track inventory movement and more. The sooner you implement a WMS the more
access you’ll have to this information going forward and historically over time which optimizes the
functionality of your warehouse.
Maintaining an organized warehouse requires visibility into real-time inventory tracking, which a
WMS provides. From inventory levels and locations to SKU movement and operator statistics, a WMS
can provide insight to support your business objectives.

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Clean Regularly
Don’t let all of your hard work organizing your warehouse go to waste by taking the “set it and forget
it” approach. A clean workspace prevents damage to inventory and increases productivity. It keeps
your employees healthy too. Routine cleaning procedures will ensure your warehouse operates at
maximum efficiency.
Whether you create a checklist for your employees to execute at the end of their shift, for example,
sweeping, cleaning work surfaces, etc. or you hire a service to clean your facility, don’t forget this
step. Keeping the warehouse clean from dust and dirt or larger hazards such as spills ensures
employee safety. This will also prevent damage to your inventory or potential loss of product.
Train Staff to Maintain Organization
Once you’ve updated your disorganized warehouse to a new and improved facility, train your staff to
maintain it. Set expectations and regularly check in with your employees to ensure the new layout is
sustainable. The labels, signage and maps you’ve created will support this process.
Perform Regular Maintenance
It’s in your best interest to adhere to the manufacturers maintenance schedules they recommend.
Make the maintenance of your equipment a priority. It keeps your facility in working order reducing
or eliminating unplanned downtime. When your equipment works properly, your employees can
remain productive. Often, purchasing the extended warranty for maintenance on your equipment is
worth the investment.
Keep Aisles clear for Moving Vehicles
Even an organized warehouse has a lot of moving parts. Keep aisles free and clear for moving
vehicles such as forklifts to keep employees and equipment safe. Optimize aisle space for forklifts to
travel easily without giving them too much room, wasting valuable floor space. Reducing clutter also
allows for easy access to stored SKUs.

Warehouse Management Fulfillment Strategies

Selecting fulfillment strategies that match the business’s size and the volume and type of orders it
receives can help the organization ship products faster, minimize waste and improve customer
satisfaction. Applying picking strategies that match the type of orders that you receive can help
maintain the most effective workflow. For example:

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  Batch picking is a technique that can help you quickly fulfill multiple orders for the same
product without wasting time by continually revisiting the same inventory location.
 Zone picking assigns pickers to different zones of SKUs. For each order, pickers are
resonpsible for picking all SKUs from their designated zone.
 First expired, first out (FEFO) picking ensures perishable products and items make it to
customers before specified expiration or sell-by dates. With FEFO, the products set to expire
first are shipped first.
 First in, first out (FIFO) picking ensures the first products to come into the warehouse are the
first to be distributed, which can help make sure older items are shipped before they can
become obsolete.
Technology is also an important part of any warehouse management fulfillment strategy. Handheld
mobile devices that display packing lists with item locations, serial numbers and lot numbers can help
increase picking speed and accuracy. Software can recommend safe and cost-effective packing based
on product dimensions to ensure each item gets shipped securely, with as little waste—and wasted
space—as possible.

Picking and Packing Process of Shikhar Organization Limited

A lot more goes into successful order fulfillment than shelves of neatly stacked products. There is an art
and a science to pick and pack methods. Good inventory management and the right pick and pack
software will help you ship orders with maximum speed and accuracy.
Fulfillment experts like us at Red Stag Fulfillment specialize in pick and pack services, but if you are looking
to do it yourself, here is your ultimate pick and pack guide.

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The standard pick and pack process is the same and has four primary steps. That’s true if you use a 3PL like
us for pick and pack services or run fulfillment yourself. The steps are:
Order receiving. 
Your sales channels should integrate with your warehouse systems. When one of your customers places
an order, the software at your fulfillment warehouse generates a packing slip. Slips can be physical
printouts or digital order information.
Order picking. 
A warehouse worker takes the packing slip and picks the items for the order from the warehouse shelves.
This action is the core of the pick and pack service. Your inventory storage strategy and your pick and pack
methods are key here. They will determine the efficiency of this step of the process. Different methods
will work best for different businesses, depending on sales volume.
Order packing.
The order goes to a packing station, where your team packs it securely, seals it, and labels it for shipping.
Order shipping.
Your team should then sort orders by carrier on the loading dock. They are ready for pickup by your carrier
or carriers at the end of the day.
Shipping your orders may seem simple. However, there is a complex science behind the efficient pick and
pack methods. Knowledge of these methods and strategies can help you run your business better. This is
true whether you are a mom-and-pop shop or a million-dollar online store.

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Picking and packing methods
When you begin to pick, pack, and ship your products, you start with methods you use in your life. You
might organize your inventory the way you organize your closet. That is, put all the pants together and all
the shirts together, organized by color. You might also pack your orders the way you would assemble a
package to send to a friend. That is, gather the items for each order and pack them one at a time.
At first, this may work for your business. As your business grows, however, you will need to adopt
different strategies. Even if you work out of your garage, better pick and pack methods can reduce
mistakes and returns. You’ll save money, and your customers will be happier.

The pick and pack methods that work well for your business will depend on your business size and
products. You might change the way you pick, pack, and ship as your business grows. Here are some
standard pick and pack methods that many companies use for fulfillment.
Piece picking
In piece picking, you take the packing slip for a single order. You move around the warehouse, picking the
items for the order off the shelves. Once you have everything you need, you take the order to the packing

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station for packing. If your business is small, you might have only a few orders a day. In this case, piece
picking may be the easiest pick and pack method to use.
Batch picking
Batch picking works well if you have enough orders to organize them into batches. Each batch of orders is
for items that are in the same area of the warehouse. The goal of batch picking is to give pickers the most
efficient path through the warehouse. If you need one SKU for several orders, it makes sense to pick those
orders together. That will save time walking back and forth. Your orders will go out faster.
You can employ batch picking even if your business is small. Consider picking all your orders at one time
each day. This method will be more efficient than picking and packing each order as you receive it. When
you pick your orders all at once, you can batch them. Pick and pack software can help you batch orders for
efficient picking.
Zone picking
Zone picking is a good technique for larger fulfillment warehouses. Pickers stay in a warehouse zone and
pick the products located in their zone for each order. Then they pass off the order to a worker in the next
zone. After an order moves through all the zones where items on the packing slip are stored, it goes to the
packing station.
Zone picking requires complex coordination in your fulfillment warehouse. You’ll definitely need
warehouse management software to help you manage zone picking.
Wave picking
Wave picking is a combination of batch and zone picking. Workers pick items within a zone for a batch of
orders rather than a single order. Then they pass the batch to the next zone for picking. 

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Many aspects of your business may feel intuitive to you. You may have an excellent head for business. You
might be skilled at organizing your workflow. When it comes to managing your inventory, however, throw
intuition out the window. Chaos is your friend.

Like with like

If you started small, you probably initially stored your inventory “like with like.” Say you sold blue dresses
and yellow dresses. You probably lined up the blue with small, medium, and large on one shelf. Then, you
did the same with yellow dresses on the next shelf. 
This organizational method makes sense to us. It’s a logical way to organize our closets and drawers.
Imagine putting some of your socks in your sweater drawer and one sweater with your t-shirts. It would
take you forever to find your clothes and get dressed in the morning.
But your pick and pack methods will work better when you’ve organized your warehouse differently.
When you line up all the yellow dress sizes together, you might grab a medium when you need a large. If
you catch your mistake, you must return the wrong size to the shelf and pick the order twice. If you don’t
catch it, you’ll have an unhappy customer. 
To accurately pick, pack, and ship using the “like with like” inventory management system, you must move
slowly. Slow picking will eat up your time and your profits. To move fast, you need to introduce chaos into
your warehouse setup.
Chaotic inventory management 

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In chaotic inventory management systems, you place your products randomly on the shelves. A product
will never be next to a similar product. The small-size yellow dresses will live next to the brown sandals,
size 6. The large blue dresses go next to a beach umbrella, and so on. When you need to pick a large blue
dress, you arrive at the shelf with blue dresses next to beach umbrellas. The only blue dress you can pick is
the right size. You won’t mistake a beach umbrella for a dress. Your error rate will go way down.
To make chaotic inventory storage work, you need inventory management software. The software maps
the products in your warehouse. When you print a packing slip, each item will have a location. Some
software can also map the most efficient route through your warehouse so you can pick orders more
quickly. 
Volume and class-based inventory management 
There are two more types of inventory storage. You can combine each with a chaotic approach to
inventory management. The volume inventory storage method places the SKUs with the highest turnover
closest to the packing station. Products that sell the slowest are stored in the farthest location. This
minimizes the steps that pickers take during the day as they pick orders. 
Another inventory storage system is class-based. Items are grouped together into classes based on a
shared trait. Turnover rate is one way to classify products. Another class option is how items are packed.
You could group large items that don’t require an over box together. You could also group products by
whether they get packed with kraft paper or bubble wrap. 
Mobile shelf-based order pick systems
One innovation in pick and pack methods is mobile shelf-based order pick systems, or MSOP. In this
system, robots bring shelves to the picker and then return them to the warehouse floor. The picker stays
stationary while the robots shuttle shelves of products back and forth. 
Order packing best practices

There are several things to think about when you get to the packing part of pick and pack methods. You
need enough infill in the box to protect the products during shipping. But you also want to ship the
products in the smallest box possible to reduce DIM weight charges. 

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If you follow a few best practices during your packing process, you can reduce errors, returns, and
shipping charges.
Re-scan the products for each order to make sure the items on the packing slip are the ones you’re putting
in the box.
Don’t make packers guess the correct box size. Use pick and pack software to calculate the size of the box
needed for each order. 
Include infill instructions for each order to improve your pick and pack methods. This allows the packer to
reach for the proper packing materials for each order quickly.
After your orders are packed, they will go to the loading dock. They can be sorted for pickup by carriers
such as FedEx, UPS, and USPS.
Pick and pack software 
Pick and pack software can help you with the steps to create efficient and accurate pick, pack, and ship
systems. Order fulfillment software can generate barcodes, batch orders, and perform inventory
management tasks.
There are many choices for pick and pack software. You may want to use multiple apps that work
together. These tools allow you to create a warehouse management software package that has precisely
the features you need. Navigating your pick and pack software choices can be confusing. Stitch Labs and
Skubana are two highly-rated order and inventory management software makers in European market.

Shipping/ Dispatching
Only the Inventory Controller is authorized to issue inventory from the storeroom. Inventory must
only be issued in terms of the approved challan and invoice. The Inventory Controller must prepare
the Stock Issue Register once stock items to be issued have been picked up from the store. All
disposed of items must be updated in the inventory records/register/database for the purposes
of proper management and control.

Minimal requirements for Issuing and Transfer of stock include;

 Specific stores persons should be responsible for issuing duties and are held accountable for
any inventory discrepancies.
 A Stock or transfer requisition (issue challan) order should be prepared and issued along with
goods dispatched.
 Issuing of stock must be done in the issuing area and not in the storerooms.
 Stock that expires or becomes obsolete with time should strictly be issued on a "first in-first
out" or first expiry first out basis.
 Only the quantity of items requested through authorized goods requisition slip should be
issued.
 No items or supplies should leave the storage areas without an approved goods requisition
slip.

Warehouse Optimization
Optimizing your warehouse operation involves fine-tuning each of these warehouse management
processes. For example, when receiving goods, an organization can label items with mobile barcodes
or attach RFID tags to make them easier to find when picking. During put-away, a well-managed
warehouse operation stores items in the minimum amount of space to maximize the capacity of the

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warehouse. Other best practices for warehouse optimization include storing popular items in easily
accessible areas and separating items that can easily be mistaken for one another.

Warehouse Monitoring & Reporting

Measuring and tracking key performance indicators (KPIs)—operational statistics that indicate how
well the warehouse is operating—can help pinpoint problems and highlight opportunities to improve
efficiency and fulfill customer orders more quickly and accurately. For example, you can set a target
for improved picking and packing accuracy, then make changes to your picking processes and
measure whether those changes are effective in helping you achieve your goal.

Warehouse KPIs
Warehouse managers often track the following KPIs, among others:
Receiving efficiency or productivity: The volume of goods received per warehouse operator, per
hour. Higher scores indicate greater receiving efficiency, while lower scores indicate that there may
be problems that should be investigated.
Picking accuracy: The number of orders accurately picked divided by the total number of orders
picked (including incorrect or short orders). The closer to 100% accuracy, the better.
Order lead time: The average time it takes for an order to reach a customer once the order has been
placed. For the highest customer satisfaction, the shorter the lead time, the better.
Rate of product return: The rate at which sold goods are returned by customers, calculated by
dividing the number of items returned by the number of items sold. To get a full picture of this KPI,
it’s important to consider why products are being returned—a customer accidentally ordering the
wrong product might not signify warehouse operation issues, but there is room for improvement if
customers often receive incorrect products or damaged goods.
Inventory turnover: How much inventory is sold and replaced in a given period of time. It’s
calculated by dividing the total cost of goods sold during the period by the average cost of inventory
during that period. This KPI reflects how efficiently a warehouse manages inventory to meet demand.
In general, higher inventory turnover is better. If a warehouse overestimates demand, inventory
turnover may be low. Too much slow-selling inventory can be costly—especially for businesses
dealing with goods that have a predetermined shelf life.

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Inventory Management
Inventory Management: is centered on efficiently and effectively ordering, storing, moving, and
picking the materials needed to make products or fulfill orders. In business terms, inventory
management means the right stock, at the right levels, in the right place, at the right time, and at the
right cost as well as price.
As a part of your supply chain, inventory management includes aspects such as controlling and
overseeing purchases — from suppliers as well as customers — maintaining the storage of stock,
controlling the amount of product for sale, and order fulfillment. Naturally, your company’s precise
inventory management meaning will vary based on the types of products you sell and the channels
you sell them through. But as long as those basic ingredients are present, you’ll have a solid
foundation to build upon.

Inventory Records
An inventory record/register/database must be maintained for all inventory items, either manually
and / or electronically. All relevant information must be included for the proper management and
control of all inventory items. It is recommended that details include but are not limited to:
 Order number/date;
 Item description;
 Quantity and value of stock on hand;
 Quantity and value of stock received;
 Quantity and value of stock issued;
 Re-order level;
 Optimum inventory level;
 Quantity and value of obsolete stock; and
 Opening/closing balance.
An inventory register/database must be printed monthly and the hard copy filed in a chronological
order to maintain a proper audit trail.

Since the operation of companies under Shikhar Group are at initial stage, most of the sister concerns do
not have inventory management system or warehouse management system. Because of small volume of
transaction currently we resort to accounting system for inventory management which does not facilitate
all the process involved in receiving, handling, tracing, picking, packing and dispatching process of the
warehouse management. To bring about uniformity in the system of inventory management in the
absence of specific software we logistic team has designed a very effective excel template to keep the
record of inventory by store keeper. The sample template has been attached here with.

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Valuation of Inventory
Inventories are required to be stated at the lower of cost and net realizable value (NRV).
Cost of inventories should include:
 costs of purchase (including taxes, transport, and handling) net of trade discounts received
costs of conversion (including fixed and variable manufacturing overheads) and other costs
incurred in bringing the inventories to their present location and condition.
 The costs of purchase of inventories comprise the purchase price, import duties and other
taxes (other than those subsequently recoverable by the entity from the taxing authorities),
and transport, handling and other costs directly attributable to the acquisition of finished
goods, materials and services. Trade discounts, rebates and other similar items are deducted
in determining the costs of purchase.
 The costs of conversion of inventories include costs directly related to the units of
production, such as direct labour. They also include a systematic allocation of fixed and
variable production overheads that are incurred in converting materials into finished goods.
Fixed production overheads are those indirect costs of production that remain relatively
constant regardless of the volume of production, such as depreciation and maintenance of
factory buildings and equipment, and the cost of factory management and administration.
Variable production overheads are those indirect costs of production that vary directly, or
nearly directly, with the volume of production, such as indirect materials and indirect labour.
 Other costs are included in the cost of inventories only to the extent that they are incurred in
bringing the inventories to their present location and condition. For example, it may be
appropriate to include non-production overheads or the costs of designing products for
specific customers in the cost of inventories.
 NRV is the estimated selling price in the ordinary course of business, less the estimated cost
of completion and the estimated costs necessary to make the sale.Any write-down to NRV
should be recognized as an expense in the period in which the write-down occurs.Any
reversal should be recognized in the income statement in the period in which the reversal
occurs.
 The cost of inventories may not be recoverable if those inventories are damaged, if they
have become wholly or partially obsolete, or if their selling prices have declined. So, they are
written down to net-realizable value.
 Inventories are usually written down to net realizable value item by item.

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  Materials and other supplies held for use in the production of inventories are not written
down below cost if the finished products in which they will be incorporated are expected to
be sold at or above cost.
 However, when a decline in the price of materials indicates that the cost of the finished
products exceeds net realizable value, the materials are written down to net realizable value.
In such circumstances, the replacement cost of the materials may be the best available
measure of their net realizable value.
 An entity may purchase inventories on deferred settlement terms. When the arrangement
effectively contains a financing element, that element, for example a difference between the
purchase price for normal credit terms and the amount paid, is recognized as interest
expense over the period of the financing.
 Inventory cost should not include: abnormal waste, storage costs, administrative overheads
unrelated to production, selling costs, foreign exchange differences arising directly on the
recent acquisition of inventories invoiced in a foreign currency, interest cost when
inventories are purchased with deferred settlement terms.
 FIFO or weighted average cost formulas should be used for measurement of inventory.
 An entity shall use the same cost formula for all inventories having a similar nature and use
to the entity.

Physical Counting Process

Items may be subject to an inventory count on a quarterly basis. Inventory counting shall be carried
out by store head, store assistant and an official from corporate office.
The store head must submit a report to the chief organizational manager after investigating any
discrepancies between the inventory records/register/database, bin/tag cards or inventory labels
and the physical inventory.
The inventory record, register, database or system must be updated accordingly.

Obsolete /Expired Stock

 Lists of items that are expired or damaged, items nearing expiration (6 months and below),
stock that has been kept for over 12 months but no movement has taken place should be
prepared at least twice a year.
 A detailed report of Obsolete / Expired, near expiry Stock should be submitted to
management and; to relevant store head who will advise on whether the items are still
needed and when they should be taken out of the store.
 Store heads will then be advised that if these items are not requested out of the store within
the stipulated time, they will be listed for disposal.
 If after submitting the report there is no proper justification for continuing to keep such
items in the store, the stores staff will write to management recommending their disposal to
create more storage space.
 If some defect is found in standard good it should be classified as sub-standard rather than
damaged goods. The amount of substandard goods must be verified by corporate personnel
and percentage of finished goods obtained from the substandard or damaged goods must be
fixed with the approval of chief manager and corporate officer.
 While identifying the goods is damaged or of substandard presence of chief manager and
corporate official is required.

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  Transfer of damaged goods require approval. The format for transfer of damaged goods is as
under.

Name of the company

Address of company’s
INTERNAL MEMO
Memo no: ____________________ Date:___________
From: ________________________
To: ________________________
Dear Sir,
I would like to request you to authorize to reclassify following products from one category to another category because of following reason:

Transfer From Transfer to

S.No. Product Name Qty (FG/RM/WIP/DMG) (FG/RM/WIP/DMG) Reason
1          
2          
3          
4          
  __________________ __________________ __________________
  Prepared By Verified By Approved By
           

Access Control
 Only stores staffs have access rights to the main door of the stores building.
 All storeroom doors must be locked when unattended.
 Cleaners and other staff must be accompanied when inside the storerooms.
 The door to the receiving area should always be closed and only opened when supplies are
coming in or out of the store.
 At the end of each working day, the storekeeper should ensure that all store doors are properly
locked and keys are kept in a secure place accessed only by authorized persons.

Bin Card
Bin Card also is known as Stock Card or Bin Tag, is the summary of inventory movement and the
remaining balance. It is the movement that includes beginning balance, stock receipt, stock issue,
and the ending quantity. It is very important for the warehouse to know how much stock remains
just by looking at this report.

The stock keepers must write into the Bin Card every time the item move in or out of the warehouse,
and it sticks to each material bin for quick access. It contains only the quantity of in and out
movement and the balance at a specific point, which reconciles with the physical balance otherwise
it is useless.

The internal auditors may perform surprise count on inventory by comparing the actual quantity with
a bin card. If there are any differences, it will lead to further investigation to understand the cause,
whether it is due to error or fraud.

Name of the company

Address

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 Bin Card
Material Name:     Maximum Stock Level:
Material Code:     Minimum Stock Level:
Location:       Reorder Level:  
Date Receipt   Issue   Balance Remarks
  GRN No Qty Challan No Qty    
             
             
             
             
             
             
             
             
             
             

Inventory management formulas

Here’s an overview of some of the most common inventory formulas for proper management of
inventory. If you’re new to inventory, you’ll probably come across a lot of formulas that might seem
confusing at first. However, with a little bit of homework, these formulas can be very useful for
keeping stock levels optimized.
 Economic order quantity (EOQ) formula
 Days inventory outstanding (DIO) formula
 Reorder point formula
 Safety stock formula
 
1. Economic order quantity (EOQ) formula
Your EOQ is the optimum number of products you should purchase to minimize the total cost of ordering
or holding stock. Figuring out your EOQ can potentially save you a significant amount of money.
EOQ = √(2DK / H), or the square root of (2 x D x K / H)
Where:
D = Setup or order costs (per order, generally includes shipping and handling)
K = Demand rate (quantity sold per year)
H = Holding or carrying costs (per year, per unit)

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Compute the economic order quantity for a product using the calculator below:
[2 × Demand(1000) × Order Cost(200) ÷ Holding Cost(16) ]½
EOQ = 159

2. Days inventory outstanding (DIO) formula

Days inventory outstanding (DIO), also known as days sales of inventory (DSI), refers to the number of
days it takes for inventory to turn into sales. The average inventory day outstanding varies from industry
to industry, but generally a lower DIO is preferred.

Determining whether your DIO is high or low depends on the average for your industry, your business
model, the types of products you sell, etc.

 
3. Reorder point formula
The reorder point formula answers the age-old question: When is the right time to order more stock?
Calculating your reorder point takes three steps:
1. Determine your lead time demand in days
2. Calculate your safety stock in days
3. Sum your lead time demand and your safety stock

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Calculate your product's reorder point using the calculator below: 
[Lead time in days × Average daily usage] + Safety stock

4. Safety stock formula

As we touched upon earlier, safety stock acts as an emergency buffer you can break out when it looks like
you’re on the verge of selling out. You want to have enough safety stock to meet demand, but not so
much that increased carrying costs end up straining your finances.
While this sounds like common sense, the trick is to decide on how much safety stock to carry:
1. Multiply your maximum daily usage by your maximum lead time in days
2. Multiply your average daily usage by your average lead time in days
3. Calculate the difference between the two to determine your safety stock

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