A2Z Inventory Management

Dr Vijay Sangam, 14:32, 29 Sep 2010
A2Z Inventory Management


We all wonder from time to time about some intriguing words used in Inventory/Materials Management function.  I picked-up some unique, some common, some uncommon words from the glossary published by The Institute of Logistics and Transport, UK and furnished the same hereunder.

ABC Classification The classification of inventory, after ABC analysis, into three basic groups for the purpose of stock control and planning. Although further divisions may be established, the 3 basic categories are designated A, B and C as follows:  
A Items – An item that, according to an ABC classification, belongs to a small group of products that represents around 75-80% of the annual demand, usage or production volume, in monetary terms, but only some 15-20% of the inventory items. For the purpose of stock control and planning, the greatest attention is paid to this category of A-products. A items may also be of strategic importance to the business concerned.  
B Items – An intermediate group, representing around 5-10% of the annual demand, usage or production value but some 20-25% of the total that is paid less management attention.  
C Items – A product which according to an ABC classification belongs to the 60-65% of inventory that represents only around 10-15% the annual demand, usage or production value. Least attention is paid to this category for the purpose of stock control and planning and procurement decisions for such items may be automated.  
Bill of Material A listing of components, parts, and other items needed to manufacture a product, showing the quantity of each required to produce each end item. A bill of material is similar to a parts list except that it usually shows how the product is fabricated and assembled. Also called a product structure record, formula, recipe, or ingredients list.  
“Control Group” Cycle Counting The repeated physical inventory taking of a small “control group” of parts, in the same locations, within a very short time frame to verify the design of a new inventory process. It is the only form of cycle counting not truly used to measure inventory record accuracy.  
De-Coupling Stock Inventory accumulated between dependent activities in the goods flow to reduce the need for completely synchronised operations  
Economic Order Interval (EOI) In fixed order interval systems, the interval between orders that will minimise the total inventory cost, under a given set of circumstances, obtained by trade off analysis between the cost of placing an order and the cost of holding stock  
First-in, First-out (FIFO) 1. Stock Valuation – The method of valuing stocks which assumes that the oldest stock is consumed first and thus issues are valued at the oldest price.  
2. Stock Rotation – The method whereby the goods which have been longest in stock are delivered (sold) and/or consumed first.  
GUS Classification A classification of products into three categories for the benefit of goods flow control and stock control, based on a products area of application within a product division.  
G = General products that may be required in several main article groups or operations centres and are administered centrally in the division  
U = Unique products that are used uniquely in one main article group or operations centre but in several of its products, and administered locally in the division  
S = Specific products that are used exclusively in one higher level product, and whose procurement is effected per individual order  
Holding Cost The cost associated with holding one unit of an item in stock for one period of time incorporating elements to cover: Capital costs for stock; Taxes; Insurance; Storage; Handling; Administration; Shrinkage; Obsolescence; Deterioration.  
Independent Demand A classification used in inventory control systems where the demand for any one item has no relationship with the demand for any other item and variations in demand occur because of random influences from the market place  
Just-in-Time JIT A dependent demand inventory control philosophy which views production as a system in which all operations, including the delivery of materials needed for production, occur just at the time they are needed. Thus, stocks of material are virtually eliminated.  
Kanban A simple control system for coordinating the movement of material to feed the production line. The method uses standard containers or lot sizes with a single card attached to each. It is a pull system in which work centres signal with a card that they wish to withdraw parts from feeding operations or vendors. Loosely translated from Japanese, the word “Kanban’ means literally means “billboard’ or “sign”. The term is often used synonymously for the specific scheduling system developed and used by Toyota Corporation in Japan.  
Last-in, First Out (LIFO) 1. Stock Valuation. The method of valuing stocks which assumes that all issues or sales are charged at the most current cost but stocks are valued at the oldest cost available. 2. Stock Rotation. The method whereby the goods which the newest goods in stock are delivered (sold) and/or consumed first.  
Materials Management The planning, organisation and control of all aspects of inventory embracing procurement, warehousing, work-in-progress, shipping, and distribution of finished goods.  
NDC National Distribution Centre. Centralized distribution warehouse depot serving the whole country  
Obsolescent Stock Parts which have been replaced by an alternative but which may still be used until stock is exhausted.  
Perpetual Inventory System An inventory control system where a running record is kept of the amount of stock held for each item. Whenever an issue is made, the withdrawal is logged and the result compared with the re-order point for any necessary re-order action.  
Quarantine Stock On-hand stock which has been segregated and is not available to meet customer requirements.  
Rotable An repairable inventory item that can be repeatedly restored to a fully serviceable condition and re-used over the normal life cycle of the parent equipment to which it is related. Such items have a repair lead time as well as a procurement lead time and normally have a serial number that is retained throughout the rotable life regardless of the extent of replacement of its component parts.  
Service Level The desired probability that a demand can be met from stock (for an individual item, group of items or a system) which can be expressed in a number of ways:  
Percentage of orders completely satisfied from stock.  
Percentage of units demanded which are met from stock.  
Percentage of units demanded which are delivered on time.  
Percentage of time there is stock available.  
Percentage of stock cycles without shortages.  
Percentage of item-months there is stock available.  
Total Acquisition Cost (TAQ) The sum of all the costs to an organisation of carrying an item in stock including reorder, carrying and shortage costs.  
Unit Cost The cost to an organisation of acquiring one unit, including any freight costs, if obtained from an external source or the total unit production cost, including direct labour, direct material and factory overheads, if manufactured in-house.  
Vendor Hub Third party operation of a warehouse, funded by suppliers, containing Vendor-Owned stock for delivery to a customer.  
Working Stock The stock of materials, components and sub-assemblies (excluding safety stock) held in advance of demand so that ordering can done on a lot size rather than on an as needed basis. In other words, the normal stocks formed by products arriving in large regular orders to meet smaller, more frequent customer demand. Also known as cycle stock or lot size stock.  
X ???????????  
York antwerp Rules A set of rules in marine insurance relating to the adjust of general average  
Zero Inventories Part of the principles of just-in-time which relates the elimination of waste by having only required materials when needed.  


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  2. Hey there just wanted to give you a quick heads up. The words in your article seem to be running off the screen in Ie.
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    1. Thanks for the feedback. It could be specific problem to your computer due to technical reasons. As you know we use a specific format to load the blog article and it automatically formats the article and graphics. Hence, no issues from my side. Thanks for the feedback once again.

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