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Inventory Management is primarily about specifying the size and placement of stocked goods. Inventory management is required at different locations within a facility or within multiple locations of a supply network to protect the regular and planned course of production against the random disturbance of running out of materials or goods. The scope of inventory management also concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods and demand forecasting. Balancing these competing requirements leads to optimal inventory levels, which is an on-going process as the business needs shift and react to the wider environment. Inventory management involves a retailer seeking to acquire and maintain a proper merchandise assortment while ordering, shipping, handling, and related costs are kept in check. Systems and processes that identify inventory requirements, set targets, provide replenishment techniques and report actual and projected inventory status. Handles all functions related to the tracking and management of material. This would include the monitoring of material moved into and out of stockroom locations and the reconciling of the inventory balances. Also may include ABC analysis, lot tracking, cycle counting support etc. Management of the inventories, with the primary objective of determining/controlling stock levels within the physical distribution function to balance the need for product availability against the need for minimizing stock holding and handling costs.

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Use of Statistics in Management

Decision Making - Use of Statistics in Management

Whether it is a factory or a farm resources of men, machine and finance have to be coordinated against time and space constraints, to achieve the objectives i the most efficient manner. The common trend of all the managerial activity is the capability to evaluate the situation vis-a-vis the objectives, limitations and alternatives, obtain information and make decisions. With the ever-increasing growth in the size and competition, the business environment has become complex. Since the complexity of business environment makes the decision making process difficult, the decision maker can no longer rely entirely upon his judgment, experience or evaluation to make a decision. Instead he has to base his decisions upon data which show relationship, indicate trends and show rates of change in various variables or characteristics.

Use of Statistics in every Area of Management

Application of statistics pervade virtually every area of management decision making whether it be production, finance, distribution, marketing or any other activity. In any organisation, the management uses statistical techniques for making valid decisions on the basis of factual data on the current operations. These decisions are of so vital importance that they not only improve the present situation, but also effect the future operations and policies. Statistics plays an important role and is very much in use in production and inventory decisions, marketing decisions, investment and financial decisions and also in planning decisions.

Business inventory

The reasons for keeping stock:

There are three basic reasons for keeping an inventory:

• Time - The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amounts of inventory to use in this "lead time."
• Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods.
• Economies of scale - Ideal condition of "one unit at a time at a place where a user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale, thus inventory.

High-level inventory management

It seems that around 1880 there was a change in manufacturing practice from companies with relatively homogeneous lines of products to vertically integrated companies with unprecedented diversity in processes and products. Those companies (especially in metalworking) attempted to achieve success through economies of scope - the gains of jointly producing two or more products in one facility. The managers now needed information on the effect of product-mix decisions on overall profits and therefore needed accurate product-cost information. A variety of attempts to achieve this were unsuccessful due to the huge overhead of the information processing of the time. However, the burgeoning need for financial reporting after 1900 created unavoidable pressure for financial accounting of stock and the management need to cost manage products became overshadowed. In particular, it was the need for audited accounts that sealed the fate of managerial cost accounting. The dominance of financial reporting accounting over management accounting remains to this day with few exceptions, and the financial reporting definitions of 'cost' have distorted effective management 'cost' accounting since that time. This is particularly true of inventory.

High-level financial inventory has these two basic formulas, which relate to the accounting period:

• Cost of Beginning Inventory at the start of the period + inventory purchases within the period + cost of production within the period = cost of goods available
• ost of goods available − cost of ending inventory at the end of the period = cost of goods sold

The benefit of these formulae is that the first absorbs all overheads of production and raw material costs into a value of inventory for reporting. The second formula then creates the new start point for the next period and gives a figure to be subtracted from the sales price to determine some form of sales-margin figure.

Manufacturing management is more interested in inventory turnover ratio or average days to sell inventory since it tells them something about relative inventory levels.

• Inventory turnover ratio (also known as inventory turns) = cost of goods sold / Average Inventory = Cost of Goods Sold / ((Beginning Inventory + Ending Inventory) / 2)
• and its inverse
• Average Days to Sell Inventory = Number of Days a Year / Inventory Turnover Ratio = 365 days a year / Inventory Turnover Ratio

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