Key Principles of Inventory Dynamics
Stock management is a fundamental component of inventory control, governed by principles that guide stock movement and management methodologies.
FIFO (First-In-First-Out)
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What it is: The earliest acquired inventory is used first.
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Benefits: Maintains accurate inventory valuation, promotes operational efficiency, and financial health by ensuring fresh stock circulation.
LIFO (Last-In-First-Out)
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What it is: The most recently added inventory is used first.
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Benefits: Can reduce tax liabilities and enhance profitability in rising cost environments but may result in the accumulation of outdated stock.
JIT (Just-In-Time)
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What it is: Minimizing inventory by aligning procurement closely with production needs.
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Benefits: Frees up capital from being tied in surplus inventory, enhances organizational agility, but demands solid supply chain management to prevent stockouts.
Strategies for Buffering and Proactive Stock Replenishment
Safety Stock
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What it is: A backup stock reservoir to manage fluctuations and inconsistencies in supply-demand and logistics.
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Role: Defends against service disruptions, enhances brand reliability, and mitigates impact from unexpected supply chain issues.
Reorder Levels
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What it is: A pre-determined stock level that triggers reorder actions, considering procurement lead times and usage rates.
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Importance: Ensures uninterrupted operations, aligns supply with demand, and maintains product availability, boosting customer satisfaction.
