CHAPTER ONE

1.1   INTRODUCTION

        Inventory control involves provision for a flow of goods in and out of a business organization. Inventory control improves the marketing system by checking discrepancies and enabling effective planning. It is also applied to all production activities. Therefore, inventory control is quite useful in a marketing organization. It is very important to marketing process. Considerable attention has been given in recent years to viewing manufacturing facilities as production/inventory system. The framework reorganizes the importance of inventory.

However, it sometimes happens that the organization will find itself with more items in inventory than that maximum that is to say with an excessive inventory. The management of inventory systems typically involves keeping track of thousands of stock keeping units. Since competitive and economic advantages exist from efficient control of inventories, inventory control models have been developed to assist inventory management.

Inventory control system is based on recorded or theoretical (not actual) stock levels to determine a set of parameters that optimize inventory control. These parameters affect both operational and financial decisions. A recorded stock level, is considered accurate when the recorded level agrees with the actual stock level, otherwise there is an error. Inaccurate inventory records may result in out-of-stock condition that lower the service level and lead to loss of goodwill production time or sales.

The main objective of inventory control is to maintain a system which will minimize total cost and determine the optimum quantity of commodity to order for and when best to make the order. The two major systems are the “Re-order level system” and the periodic review system.

Re-order level system: This is the most commonly used to set quantity of stock for each item. This system which is more responsive to fluctuations in demand compared with periodic review system sets the value of three important level of stock as either check or trigger for management. The three important level of stock are as follows:

i.      Re-order level   = Maximum usage (per period) x maximum lead time.

ii.     Minimum Level (Lmin) = Re-order level - normal usage average lead time.

iii.    Maximum level (Lmax) = Re-order level + Economic order quantity (EOQ) – (Minimum usage x minimum lead time) where EOQ is associated with cost of ordering inventory.

Periodic Review system: This system sets a review period for each stock item at the end of which the stock level of the item is brought up to a predetermine value. The cost would be saved and profit is increased, when many items are ordered at the same time or in the same sequence. There is little or no chance of stock becoming obsolete since it is reviewed periodically.

INVENTORY GRAPH

Inventory control can be represented graphically relatively to the information obtained during inventory control system.

Fig. 1.1 

Inventory graph here, represents the control of the stock from the stores at a steady rate of q1 per T. Here, the graph can be called a periodic review graph.

Then Average inventory level from the graph

= Area A + Area B + Area C

= Area A + Area B + Area C

Since the internal or lead time and the time of replenishment are equal over the time of stock control.

INVENTORY MODEL

Inventory Model depends on the nature of the demand of that commodity. The demand may be deterministic (known with certainty) or probabilistic (described by probability density). Inventory model includes the following:

a.     Single item static model (shortages not allowed)

b.     Single item static model (Shortages allowed

c.     Adapted model with gradual replenishment.

1.2      STATEMENT OF PROBLEM

The inventory control system has been undermined by supermarkets and other business organizations, which has created room for loss of goods or products and improper record keeping (stock keeping). As a result the following problems arise:

1.     Lack of inventory control in the supermarkets and other business organizations.

2.     Lack of optimum quantity of commodity to be ordered for and when best to make the order.

3.     Improper management of stock in the supermarkets and other business organizations.

1.3   AIMS AND OBJECTIVE

        The aims and objective of the study are:

i.            To examine the nature of stock control measures applied by the three supermarkets.

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