Inventory control

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Here are the top 6 inventory control techniques:

6 Inventory control techniques

1. ABC inventory classification

ABC classification is also referred to as the “Always Better Control” framework based on the Pareto principle. The Pareto principle states that 80% of the outcome is derived from 20% of total effort. The Pareto principle is also known as the 80/20 rule.

2. VED analysis

Unlike the ABC analysis, which classifies products based on their consumption value, VED analysis categorizes material based on their criticality for the business. VED is an acronym vital, essential, and desirable, each one a category. VED is used to classify items for a production schedule.

3. FNSD analysis

The FNSD analysis categorizes inventories into four groups based on descending order of usage. FNSD analysis emphasizes turnover: fast (F), normal (N), slow (S), or dead (D).

4. EOQ approach

The VED, FNSD, and ABC analysis are inventory classification methods. Economic order quantity (EOQ) is a calculator used to determine ideal order size to meet demand without overspending. EOQ is calculated to minimize holding costs and excess inventory.

5. Reordering point

So far, we’ve covered how to classify inventory into different categories and determine the optimum ordering quantity, but what about stock replenishment? The reordering point formula is used to calculate the threshold, or point, at which a stock needs to be ordered to prevent stockout.

6. Just-in-time inventory management

Just-in-time (JIT) is an inventory control technique in which goods are purchased from the supplier only after receiving a customer order. It is also known as the zero inventory system.

For more details regarding each technique and formulas for calculating them, check out the free in-depth guide on inventory control.

Cin7 team
WRITTEN BY

Cin7 team

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