Inventory

Management
UNIT 5
Unit Outcomes:
At the end of the unit the student must have:

1. understood the concept of Inventory Management

2. discussed the process of Inventory
Inventory - a catalog of the Merchandise- the commodities or
property of an individual or goods that are bought and sold in
estate business
In Stock - on hand : in the
Parstock - In the hotel industry, the
store and ready for delivery
term par stock is used to determine the
Out of Stock - having no more demands needed by the hotel on a daily
on hand : completely sold out basis, and the minimum amount of
supplies needed to fill these demands, in
order to ensure smoothness and stability
of functions in the hotel.
https://www.upcounsel.com/par-stock#:~:text=a%20daily%20basis.-,What%20is%20par%20stock%3F,of%20functions%20in%20the%20hotel .

Source: https://www.merriam-webster.com/dictionary
Annual – once a year Transportation-
Semiannual - occurring every six a. means of conveyance or travel
months or twice a year from one place to another
Quarterly - a periodical published b. public conveyance of
four times a year passengers or goods especially
as a commercial enterprise
Turnover - is the total amount of
sales you make over a set
period. This could be weekly,
monthly, quarterly or annual
turnover
Source: https://www.merriam-webster.com/dictionary
Inventory Management
Inventory management practices help companies place orders accurately as well as
maintain different assortments of products and supplies.
Inventory management systems are used to create reports and track costs on which
suppliers and vendors have the best costs as well as used to reconcile or adjust
inventory after physical counts.
Role of Inventory
Management
Companies need to manage the upstream
supplier exchanges and downstream The most fundamental functions that
customer demands. inventory has in supply chains are as
follows:
In this situation, the company enters a
state where it has to maintain a balance • To supply and support the balance of
between fulfilling the demands of demand and supply.
customers, which is mostly very difficult • To effectively cope with the forward
to predict with precision or accuracy, and and reverse flows in the supply chain.
maintaining adequate supply of materials
and goods. This balance can be obtained
through inventory.
Aspects of
Inventory
Management
Companies ideally would want to carry just
enough finished goods inventory to satisfy Here are four (4) aspects of inventory
market demands, at the right time and management and these are:
right quantity.
a. Stock turnover
Inventory decisions involve two major b. When to order (Re-order point)
concerns: c. How much to order (Economic Order
1.) when to order; and Quantity)
2.) how much to order. d. Warehousing

This requires entrepreneurial decisions in

the right stock quantities to maintain in
order not to suffer
out-of-stock or over-the-stock situations.
1. Stock Turnovers
This is the balance between sales and inventory on hand, expressed by stock turnover, the
number of times during specified period that average inventory on hand is SOLD. Stock
turnover is calculated in units and pesos:

FORMULA:
𝒏𝒐. 𝒐𝒇 𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅 𝒅𝒖𝒓𝒊𝒏𝒈 𝒕𝒉𝒆 𝒚𝒆𝒂𝒓
𝑨𝒏𝒏𝒖𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑺𝒕𝒐𝒄𝒌 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒊𝒏 𝒖𝒏𝒊𝒕𝒔 =
(𝑩𝒆𝒈. 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 + 𝑬𝒏𝒅𝒊𝒏𝒈 𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚)/𝟐

𝑪𝒐𝒔𝒕 𝒐𝒇 𝑮𝒐𝒐𝒅𝒔 𝑺𝒐𝒍𝒅

𝑨𝒏𝒏𝒖𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑺𝒕𝒐𝒄𝒌 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒊𝒏 𝑷𝒆𝒔𝒐𝒔 =
𝑩𝒆𝒈. 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 + 𝑬𝒏𝒅𝒊𝒏𝒈 𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 /𝟐
 Stock Turnovers

The advantages of high inventory turnover are:

1. Inventory investments are productive;
2. Merchandise are fresh;
3. Losses from changes in styles and packaging are reduced; and
4.Cost of maintaining inventory are lessened to the minimum.
 Stock Turnovers

Example:
For the year ending December 2019, EAT's Showtime Grocery reported 228,000 units of canned
tuna sold, with beginning inventory of 15,000 units and ending inventory of 23,000 unit. Compute
for the Annual Rate of stock Turnover (in Units).

Solution:
𝒏𝒐. 𝒐𝒇 𝒖𝒏𝒊𝒕𝒔 𝒔𝒐𝒍𝒅 𝒅𝒖𝒓𝒊𝒏𝒈 𝒕𝒉𝒆 𝒚𝒆𝒂𝒓
𝑨𝒏𝒏𝒖𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑺𝒕𝒐𝒄𝒌 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒊𝒏 𝑼𝑵𝑰𝑻𝑺 =
(𝑩𝒆𝒈. 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 + 𝑬𝒏𝒅𝒊𝒏𝒈𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚)/𝟐
𝟐𝟐𝟖, 𝟎𝟎𝟎
𝑨𝒏𝒏𝒖𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑺𝒕𝒐𝒄𝒌 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒊𝒏 𝒖𝒏𝒊𝒕𝒔 =
(𝟏𝟓, 𝟎𝟎𝟎 + 𝟐𝟑, 𝟎𝟎𝟎)/ 𝟐

𝟐𝟐𝟖, 𝟎𝟎𝟎
𝑨𝒏𝒏𝒖𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑺𝒕𝒐𝒄𝒌 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒊𝒏 𝒖𝒏𝒊𝒕𝒔 =
𝟏𝟗, 𝟎𝟎𝟎
𝑨𝒏𝒏𝒖𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑺𝒕𝒐𝒄𝒌 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒊𝒏 𝒖𝒏𝒊𝒕𝒔 = 𝟏𝟐

In other words, within a year, the company tends to turn over its inventory 12x
 Stock Turnovers

Example:
For the year ending December 2019, EAT's Showtime Grocery reported cost of goods sold of
Php.7,980,000 with beginning inventory of php. 525,000 and ending inventory of php.805,000.
Compute for the Annual Rate of stock Turnover (in Pesos).

Solution:
𝑪𝒐𝒔𝒕 𝒐𝒇 𝑮𝒐𝒐𝒅𝒔 𝑺𝒐𝒍𝒅
𝑨𝒏𝒏𝒖𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑺𝒕𝒐𝒄𝒌 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒊𝒏 𝑷𝒆𝒔𝒐𝒔 =
𝑩𝒆𝒈. 𝑰𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 + 𝑬𝒏𝒅𝒊𝒏𝒈 𝒊𝒏𝒗𝒆𝒏𝒕𝒐𝒓𝒚 /𝟐
𝑷𝒉𝒑 𝟕, 𝟗𝟖𝟎, 𝟎𝟎𝟎
𝑨𝒏𝒏𝒖𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑺𝒕𝒐𝒄𝒌 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒊𝒏 𝑷𝒆𝒔𝒐𝒔 =
(𝑷𝒉𝒑 𝟓𝟐𝟓, 𝟎𝟎𝟎 + 𝑷𝒉𝒑. 𝟖𝟎𝟓, 𝟎𝟎𝟎)/𝟐
𝑷𝒉𝒑 𝟕, 𝟗𝟖𝟎, 𝟎𝟎𝟎
𝑨𝒏𝒏𝒖𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑺𝒕𝒐𝒄𝒌 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒊𝒏 𝑷𝒆𝒔𝒐𝒔 =
𝑷𝒉𝒑 𝟔𝟔𝟓, 𝟎𝟎𝟎
𝑨𝒏𝒏𝒖𝒂𝒍 𝑹𝒂𝒕𝒆 𝒐𝒇 𝑺𝒕𝒐𝒄𝒌 𝑻𝒖𝒓𝒏𝒐𝒗𝒆𝒓 𝒊𝒏 𝑷𝒆𝒔𝒐𝒔 = 𝟏𝟐𝒙

In other words, within a year, the company tends to turn over its inventory 12x
2. When to Reorder Inventory
The REORDER POINT establishes an inventory level at which new sales orders must be placed. The
reorder point depends on: order lead time, usage rate, and safety stock.
1. Order lead time is the period from date a sales order is placed until the date goods are ready
for sale or use (received, checked and altered if necessary).
2. Usage rate means the average sales in units per day or the rate at which a product is used in
a production process.
3. Safety stock is the extra merchandise kept on hand to protect against out-of-stock conditions
resulting from unexpectedly high demand, greater-than-anticipated production volume and
delivery delays.

FORMULA:
𝑹𝒆𝒐𝒓𝒅𝒆𝒓 𝑷𝒐𝒊𝒏𝒕 = 𝑶𝒓𝒅𝒆𝒓 𝑳𝒆𝒂𝒅 𝑻𝒊𝒎𝒆 𝒙 𝑫𝒂𝒊𝒍𝒚 𝑼𝒔𝒂𝒈𝒆 + 𝑺𝒂𝒇𝒆𝒕𝒚 𝑺𝒕𝒐𝒄𝒌
 Reorder Inventory
Example:
An ice cream shop needs to find out when it should place orders for skimmed milk from its
manufacturer. Compute for the Reorder Point using the following relevant information:
Average usage: 25 units per day Safety Stock: 20 units
Average Lead time: 7 days

Solution:
𝑹𝒆𝒐𝒓𝒅𝒆𝒓 𝑷𝒐𝒊𝒏𝒕 = 𝑶𝒓𝒅𝒆𝒓 𝑳𝒆𝒂𝒅 𝑻𝒊𝒎𝒆 𝒙 𝑫𝒂𝒊𝒍𝒚 𝒖𝒔𝒂𝒈𝒆 + 𝑺𝒂𝒇𝒆𝒕𝒚 𝑺𝒕𝒐𝒄𝒌
𝑹𝒆𝒐𝒓𝒅𝒆𝒓 𝑷𝒐𝒊𝒏𝒕 = 𝟕𝒅𝒂𝒚𝒔𝒙𝟐𝟓𝒖𝒏𝒊𝒕𝒔 + 𝟐𝟎
𝑹𝒆𝒐𝒓𝒅𝒆𝒓 𝑷𝒐𝒊𝒏𝒕 = 𝟏𝟗𝟓 𝒖𝒏𝒊𝒕𝒔

In short, the company should re-order another set of inventory when the level inventory is at 195 units.
3. How much to Reorder
There are two types of costs related to the maintenance of inventory in a firm.

The carrying cost refers to the cost of carrying one unit of inventory into stock. It can be defined as
expenses involved in keeping and maintain a stock. It is including rent of space, equipment,
materials, labor, insurance, security, interest, and other direct expenses.

On the other hand, ordering cost refers to the cost of placing an order for an item. These are the
fixed costs associated with placing an order, such as the cost of preparing a purchase order,
shipping charges, and inspection fees.
 How much to reorder

To illustrate:

The level of inventory to be

maintained by a firm is that
level that will put total
inventory cost at a minimum.
Total inventory cost simply
refers to the sum of carrying
and ordering cost.
 How much to reorder

Economic Order Quantity (EOQ) is a mathematical model used to determine the optimal quantity of
inventory a company should order at a time to minimize the total cost of inventory management.
It is the order volume corresponding to the lowest sum of ordering cost and inventory holding or
carrying costs.

The formula of economic order quantity is:

Where:
𝐸𝑂𝑄
2𝑥𝐷𝑥𝑂
𝐶 EOQ= economic order quantity
D= demand or requirement units for the period
O= ordering cost
C= carrying cost
 How much to reorder
Example:
The demand of hotdogs at a local food cart is 9,000 servings per year. It incurs a fixed ordering
cost of Php 5.00 each time an order is placed. The carrying cost of each unit of a product is
Php 10.00. Compute for the economic order quantity.

Solution:
𝐸𝑂𝑄 = 9,000
2𝑥𝐷𝑥0
EOQ = 𝐶
𝑬𝑶𝑸 = 𝑷𝒉𝒑 𝟗𝟒. 𝟖𝟕 ≈ 95
2 𝑥 9,000 𝑢𝑛𝑖𝑡𝑠 𝑥 𝑃ℎ𝑝 5 𝑝𝑒𝑟 𝑜𝑟𝑑𝑒𝑟
EOQ = That means that the company should order a
𝑃ℎ𝑝 10 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡
minimum of 95 units of hotdog to minimize the
total cost of inventory management for the year.
90,000
EOQ = 10
4. Warehousing
Supply chain management’s goal is to maintain an
uninterrupted flow of goods, from the collection of
raw materials to manufacture to distribution of the
final product. When it comes to managing all the
moving parts, warehousing plays an important role in
streamlining the supply chain.

Factors to consider in warehousing:

1. Location
2. Services
3. Storage
1. Location To maintain the flow of goods and
prevent interruptions to distribution,
When picking a warehouse, you need to ask: you should look for a warehouse that
is strategically located along your
• Is the warehouse near a port of entry?
supply route. You want to ensure you
• Is it near major transportation hubs, like
airports and highways?
can quickly get your goods to the
• How quickly can I get my products from warehouse and eventually to a
port to warehouse to the road? transportation hub (be it an airport, a
• Where is the warehouse in relation to seaport, or a highway) that will take
point of entry and the end-location of my them to their final destination. Choose
products? wrong, and you’re adding time to your
delivery schedule.
2. Services These are to consider:

Look for a warehouse that offers flexible Public warehousing

scheduling and value-added services so you Look for a warehouse that offers
can repack supplies for the next step of
flexible contracts and space so you can
distribution, label and divide based on where
each shipment is going, and more. That will
store as much or as little as you want,
save you time and money. only for the time that you need—no
longer.
Packing and repacking Labeling

Some of the most important services Labeling for the recipients of your
warehouses can offer in order to optimize goods is a value-added service that
supply chains are:
can save you time and energy and
• Repackaging (breaking down your supply
makes your shipments ready for their
into smaller groupings based on where final recipients without you having to
final shipments are going) lift a finger.
• Repalletizing (moving goods to new
pallets for final shipments)
• Stretch-wrapping (to keep goods safe
as they make their way to their final
destination)
TRANSPORTATION
Companies in the light of rapidly There are basically four common
changing trends in physical modes of transportation used by
distribution are actually engaged in companies in shipment of goods:
transportation decisions, more
specifically in the choice of a. Waterways
transportation carriers which have b. Railroads
substantial bearings in the pricing of c. Truck/ Motor Carriers
the products. d. Airways
a. Waterways. The cost of
water transportation is low for
shipping bulky, low-value and
non-perishable products.
However, water transportation
is also the slowest
transportation mode and is
always affected significantly by
weather conditions.

https://www.google.com/url?sa=i&url=https%3A%2F%2Fptop.only.wip.la%3A443%2Fhttps%2Fwww.zeebiz.com%2Findia%2Fnews-big-boost-to-water-based-transport-work-on-13-national-waterways-for-passenger-movement-
begins-190236&psig=AOvVaw3G2yCW9ow_xeQc6H-d5l_w&ust=1698900832415000&source=images&cd=vfe&opi=89978449&ved=0CBIQjRxqFwoTCIDZ1_qAooIDFQAAAAAdAAAAABAD
b. Railroads. Railroads are one
of the most cost-effective
models for shipping large
amounts of bulk products.
Railroads normally carry heavy
items that are low in value
(relative to their weight) over
long distances. Railroads ship
items too heavy for trucks.

https://i.ytimg.com/vi/IKiFu769A7E/oar2.jpg?sqp=-
oaymwEVCJUDENAFSFryq4qpAwcIARUAAIhC&rs=AOn4CLA8lTGzqwAIyv85rsH8U903mjP3XQ
c. Truck / Motor Carriers. Trucks
are highly flexible in their routing and
time schedules. They are efficient in
hauling high-value merchandise over
short distances. Motor Carriers are
more flexible than rail because they
can readily pick up packages at a
factory or warehouse and promptly
deliver them to the customer's door.
For all intents and purposes, trucks
are faster than rail for
short distances. https://cdn2.webdamdb.com/1280_QAsGc7BAij84YkQ1.jpg?1629498026
d. Airways. Airways are the
fastest but the air freights are
much higher than rail or truck
rates. This mode of
transportation is common for
perishables and high-value, low-
bulk items.

https://dfreight.org/wp-content/uploads/2022/09/Cargo-Flight-DFreight.jpg
DISTRIBUTION CHANNELS OF HOSPITALITY INDUSTRY
 In today's cut throat competition,
technology is the only medium
through which one can really push
hard to stand in the crowd. But
what technology would you choose
to solve your problems. In
hospitality there are numerous
software which can really help your
hotel to gain new customers and
facilitate seamless
activities.
Technology has really changed the hotel
industry. to avoid such scenario in the
current market scene, it is important to use
the latest technology which helps you to
provide an actual status of your hotel to the
customer before they plan or leave their
homes.

This revolution opens multiple distribution

channels for the hotels which allow the hotels
to increase their visibility users. There are a
number of blogs, websites, review sites
which helps the hotels to on the internet
among the online the grow on internet.
 Distribution channel for hotels is an
approach currently accepted by most of the
hotels for an aggressive sales and
distribution purpose. The matter of the fact
is that the ultimate goal of the hotels are to
create better visibility on all distribution
channels so that customers can find them
easily and book a room.

An effective management of distribution

channel for hotels require an eye on the
reviews and optimization of the hotel on the
internet.
tps://hotelmanagementsoftware.files.wordpress.com/2013/09/hotel-distribution-system.jpg
 Thanks!
Do you have any
questions?
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 REFERENCES

1. Food and Beverage Management

https://uou.ac.in/sites/default/files/slm/HM-301.pdf

2. The Role of Warehousing in Supply

Chain Management
https://www.americanwarehouses.com/blog/the-role-of-warehousing-in-supply-chain-
management#:~:text=By%20American%20Warehouses,in%20streamlining%20the%20supp
ly%20chain.