25-08-2017, 09:32 PM
Inventory analysis
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Definition:
Technique for determining the optimum level of inventory for a firm, it commonly employs one of the two formulas: (1) Inventory turnover = Cost of goods sold ÷ average inventory. (2) Number of day's sale in inventory = inventory at the end of an accounting period ÷ average daily cost of goods sold.
Will Your Role Include Inventory Management?
A big trend is for organizations to blend their operational functions under the umbrella known as supply chain management. Often, the first two functions to merge are purchasing and inventory management.
So, as a purchasing professional, you must understand inventory management principles to remain valuable.
First, you must know how much inventory to have on hand to ensure continuity of supply in the event of an uncharacteristic increase in either demand and/or lead time. This quantity of inventory is called the safety stock. There is no universally used formula for determining safety stock quantity, but PurchTips Edition 86 suggested a risk averse calculation.
Second, you must know when to reorder materials for inventory. Generally, this point in time is determined when the quantity of materials in stock decreases to a certain level, called the reorder point.