Publications: The First Steps to Inventory Management

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Click here to download: First Steps to Inventory Manangement



Inventory is both a financial asset and an operational risk to any business.  It is a cornerstone of customer service and a complexity in production efficiencies that directly impacts cash flow, profit and loss accounts and, in turn, the overall balance sheet.


This paper is the first in a set of three that all look at different options available to optimise inventory. (See also Professional Inventory Management and Advanced Inventory Management article in process).

This paper considers how to manage inventory both at an aggregate level and by individual part numbers.  Its simplicity allows it to be a useful guide to both experienced Inventory Planners and those with little experience of inventory systems. It begins by looking at the fundamental need to achieve inventory control and how to instigate a simple 3-class management system.

The First Steps to Inventory Management

This section of the paper looks at fundamental definitions and explanations relating to Inventory and Inventory Management:

1. What is Inventory?

2.   Inventory Control, Management and Planning.

a)      This includes a discussion about activities that effect Inventory.

b)      What happens when poor inventory occurs?

c)       How methods such as Cycle Counting/Perpetual Physical Inventory (PPI) can be used to measure and control Inventory.  

d)      Typical conflicts within the organization that may effect inventory and what can be done to resolve and avoid these.

3. A concise set of definitions used during inventory analysis, for example; batch stock, buffer stock, AUV and DGR.

A simple stock classification method is discussed that gives details about the ABC technique, Pareto distribution and takes a look into further class level and part level analysis.

There is a worked example of an ABC classification with valuable information about creating alternative scenarios and varying parameters for class boundaries and order frequency per class. The results are shown in a series of statistical tables.

Summary of the first steps to Inventory Management

This article highlights the following steps as being fundamental to successful Inventory Management:

Step 1                   Inventory Control

Step 2                   Basic Inventory Management

The next paper in the series, Professional Inventory Management  introduces the concept of overage and examines what happens when the number of classes is increased. Safety stock and its impact on overall inventory and service levels are also looked at.

This paper was authored by Dr Geoff Relph, Witek Brzeski and Gail Bradbear in IOM Control Journal, Vol. 28 - No. 10, December 2002/January 2003.

2011 Training Programme now running: Inventory Introduction, Inventory Advanced & MRP and ERP Essentials 



The First Steps to Inventory Management

This paper is the first in a set of three that all look at different options available to optimise inventory. This article looks at the basics of ABC control. IOM Control Journal, Vol. 28 - No. 10, December 2002/January 2003.


Professional Inventory Management

The main part of this paper focuses on the development of options available for managers to improve inventory performance and discusses inventory optimisation at aggregate and item level. IOM Control Journal, Vol. 29 - No. 05, July/August 2003.



Extending the Pareto Principle to MRP Controlled Parts and Regaining MRP Control

This article discusses the outcome of an extensive research project. The completion of the project has led to the development of a decision-aid that allows the prediction of eventual MRP System Performance by using the Pareto Principle and setting the MRP Parameters to suit this.

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