Determination of stock levels

Having too much and too little inventory involves risk. If the inventory level is low, then the firm will encounter frequent stock-outs involving heavy ordering costs. On the other hand, if the inventory level is too high, it will be an unneeded tie-up of capital. Thus, effective inventory management demands that an enterprise should keep an optimum level of inventory where inventory costs are minimum and at the same time there should be no stock-out which might result in loss of sale or stoppage of production.

Economic Order Quantity

Economic order quantity (EOQ) refers to the ideal quantity that a firm should purchase to keep its inventory costs minimal, such as shortage or carrying costs. The overall objective of economic order quantity is to decrease spending. Its formula is used to find the highest number of units required (per order) to reduce buying.

ABC Analysis

ABC analysis is a technique used to classify inventory into three categories: A, B, and C, based on their descending order of value. Items categorized as A have the highest value, followed by those in category B with a lower value, and finally, items in category C with the lowest value.

VED Analysis

VED analysis is a method of inventory management that categorizes inventory based on its functional importance to an organization. It classifies stock into three categories: Vital, Essential, and Desirable, reflecting their varying levels of importance and necessity for the organization's production or other activities.

JIT Inventory Control System

Just-in-time, or JIT, is an inventory management technique where goods are received from suppliers only when they are needed. The main objective of this method is to reduce inventory holding costs by assuring the delivery of purchased material just before their use or demand.