Question

discuss with examples the two methods of inventory control. Which method do you think is better for a retail store with several items of small value?

Answer 1

Sol:

Two methods under consideration for retail are:

1.ABC analysis method and

2.Just in time Purchase

1.ABC analysis Method:

• This process of classification of products as per the level of importance in terms of their relative criteria such as purchase or sales volume.
• It can be described as a technique that is used in a business sense for denoting a categorization of large volume of Products into groups. Which mean we will categorize the products into groups under three categories i.e A, B and C.

A- High Prority

B-Lessor Prority

C- Last prority

• By use of this method an entity save cost handling stock, inventory holding cost by procuring high priority products rather procuring all the products.

2. Just in time Purchase:It is a Purchasing system in which material Purchases are contracted so that the receipt and usage of the material to the maximum possible extent, Coincide.

With this we can eliminate inventory holding cost.

On Comparison of above two mentioned two methods

- in case retail business the most preforable method is ABC analysis method since there large volume of products.

-Further value of products is low Just in time purchase may not be suitable

-However both the methods can be combined to optimum benifit as below:

For Products with category A and B entity can keep the stock as required minimum level and for Category they can go Just in time purchase.