INVENTORY MANAGEMENT: TYPES, MODELS AND EXAMPLES - DUDAS - 2025

The inventory management is a process by which various actions are performed for a company to improve related to the organization, planning and control your entire inventory. For a company to generate maximum dividends it is essential that it makes effective use of its resources, including those of its inventory.

The assets of a company are made up of those material elements that have been acquired by their owners, either for their processing (raw material, packaging for packaging, boxes, etc.), or for their operation (grocery stores, land, vehicles, machinery, stationery, furniture, equipment and artifacts, among others).

These possessions must be registered, categorized, weighted and managed in detail to have accurate information regarding the organization's assets. With this record, it is possible to know what things are bought, how often replacements are made, the amount of supplies in reserve, among other data.

What is an inventory?

An inventory is a reliable relationship of all the elements obtained by the company, which are stored in order to be used in future times, whether in the area of ​​production, sale or services. The main purpose of an inventory is to help you make a profit.

Inventory profit

- They allow production and / or activity to remain constant and not suffer interruptions caused by lack of inputs.

- They make it possible to plan purchases from wholesalers, which allows obtaining better prices by purchase volume.

- They reduce the loss due to exceeding the expiration date of the stock in warehouse and due to its stagnation.

- They reduce search time, since everything is quickly locatable.

Inventory types

Inventory of raw materials

It is made up of the basic elements necessary for the production of the products made by the company. For example: lumps of wheat flour, sugar, and butter stored by a cookie factory.

These inputs are kept in storage for use when required. As it is used, it will be necessary to make new application orders to replace what was used.

Inventory in manufacturing process

These are the elements that are being used to make the products, which are still in the elaboration phase without having become a final product.

Inventory of manufactured products

They are those stocks that are already fully processed and that are awaiting the moment of sale to leave the warehouse.

For example: a shoe factory manufactures a large number of models in various sizes so that it can be dispatched as soon as an order is placed.

Inventory of materials and endowments

They are those inputs that, although they are not essential for the production of the final products of the company, operate as support material in the processes related to production.

For example: office supplies, fuel storage, packaging and packing material, hardware utensils, among others.

Inventory management features

Requirements in each company

Each company or organization has different requirements and rhythms related to the type of product or service it makes. That is why there cannot be just one way to take inventory.

This requires a thorough analysis that covers the route of consumables, from ordering the raw material to the delivery of the finished product.

Planning tool

Inventory management is a useful tool to avoid improvisation when making purchases.

It includes not only the registry of goods acquired by the entity to guarantee its full operation, but also includes the location, coding and description of the items, the processes, the times and the factors involved in each phase.

These phases range from the order of raw material to the dispatch of the manufactured products or services performed.

Systematization

The systematization of these procedures guarantees that an efficient and dynamic flow of supplies is maintained, and that all processes are carried out in an optimal and timely manner. Likewise, it minimizes the surpluses or deficits of stock in the warehouse, which would cause production disruptions.

How is inventory management done?

The first thing to do is a careful observation of everything there is. Then record in real time the entry and exit of each product with its own specifications.

By keeping the variables involved in operational processes under control, costs are forecast and uncertainty levels are reduced in the face of market fluctuations.

Carrying out an appropriate inventory management contributes to business profitability, since it allows identifying and correcting weaknesses in the use of resources.

Methods

There are several methods to perform inventory management. In fact, there are even computer programs that provide simple and automated tools so that the person in charge can carry out this task in an agile and fast way.

However, all inventory management is based on models that serve as the basis for its execution. The models are used to analyze the effect of different factors in the environment and allow foreseeing eventualities that may occur in the immediate and long term.

Currently there are many computer programs that use these models to make the application of the formulas easier, since users only have to enter the data and the system makes the calculations in an automated and fast way.

The two main models that are applied in inventory management are: the Wilson model and the ABC model.

Wilson's model

It is also called the Optimal Order model or EOQ model. It is based on mathematical formulas to define the most indicated order quantities that must be made in the company to make the investment of assets more efficient.

This model can be implemented in those companies that meet the following conditions:

- That your need for raw material is quantified in stable quantities.

- That their suppliers make shipments in a continuous way and their price is constant.

- That the flow of production and dispatch of your finished products also remains unchanged.

- That there is no interruption in their stocks.

Before applying the Wilson Model, it is necessary to determine certain variables:

- Q: represents the amount of supplies to be requested per order.

- q: represents the number of products made by the factory that are sold per year.

- g: represents the cost per unit involved in storing the inputs per year.

- n: represents the number of orders placed by all customers per year.

- k: represents the cost per unit of all the orders per year.

- Ss: represents the number of units that are in the company's security reserves.

- D: represents the number of units of product produced by the company that customers demand.

To determine the optimal order quantity, the following formulas apply:

p (D / Q)

Then:

g (Q / 2)

And finally:

The ABC model

Also called the 80/20 method, it is based on the so-called Pareto principle and is used to classify inputs according to their importance.

This model is applied to inventoried products that require different ways of control. In this model, each item receives a differentiated treatment according to its category.

Initially, the cost of each item stored and its frequency of consumption must be recorded. Then the amount of inputs consumed is multiplied by the cost of each unit, and then we order the resulting figures in increasing order.

The figures are categorized as:

TO

They are those items that have the most value, either because they are the most used, the most requested by customers or the most important for the company. For this line, rigorous periodically supervised controls must be implemented, paying special attention to the accuracy of the recorded data.

This segment deserves a greater investment of resources because it is the most profitable. This category should be located in the area that is most easily accessible to staff or the public. If possible, the ideal is to use automated systems to order and dispatch products, ensuring their entry and exit quickly and efficiently.

B

They are those items that have average value. For this line, rigor is relaxed a bit without neglecting the existence check. This category should be located in the medium access area due to its moderate output.

C

They are the least valuable items. Many times the expense they represent is more than the profit they contribute to the company. No excessive precision is required in the records; in fact, it is enough to keep the articles in order. This category can be located in low traffic spaces due to its slow exit.

The ABC methodology promotes warehouse effectiveness, as it requires less time when locating inputs because the most requested are grouped.

However, it must be taken into account that a check must be made every so often in order to update the value of the products, because there may be modifications and some products change category. This system is especially useful when making decisions.

Examples

- A shoe company sells more in the spring and summer months and needs to increase stocks in those months.

- A pharmaceutical company faces a phase of many orders due to an epidemic.

- A meat company has accumulation of stock, which produces expenses, and has to decide how to reduce the storage of these products.

References

1. Bastidas B., Edwin. Emphasis on logistics and supply chain, Guide 11. Faculty of Engineering, 2010.
2. Business encyclopedia for companies. Recovered at: es.shopify.com
3. Business notes. Inventory and warehouse management. (2016) Recovered in: esan.edu.pe
4. How to do efficient inventory management. Recovered at: destinonegocio.com