Inventory and warehouse management

Why inventory is hard

Too little inventory means stockouts and lost sales; too much ties up cash, needs space, and risks expiry or obsolescence. The goal is the right stock, in the right place, at the right time.

Key concepts

• Safety stock: a buffer for demand and supply variability.
• Reorder point = average daily demand × lead time (days) + safety stock. Example: 50 units/day × 6 days + 100 = 400 units. Reorder when stock falls to 400.
• EOQ (economic order quantity) = √(2 × annual demand × order cost ÷ holding cost per unit per year): the order size that balances ordering and holding costs.
• Inventory turnover = cost of goods sold ÷ average inventory. Higher means stock moves faster. Days of inventory = 365 ÷ turnover.
• ABC analysis: A items (about 20% of SKUs, about 70–80% of value) get tight control and frequent counts; B moderate; C (many low-value items) simple rules.
• FIFO (first in, first out) and FEFO (first expiry, first out) for perishables and pharma.
• Push (forecast-driven) vs pull (demand-driven, just-in-time) systems.

Demand forecasting

Use historical sales, seasonality (festivals, monsoon, exam season), promotions, trends and market intelligence. Methods range from moving averages and seasonal indices in Excel to statistical and ML models. Measure forecast accuracy (MAPE) and plan for uncertainty with safety stock.

Warehouse operations

Inbound: receiving, quality check, put-away. Storage: slotting fast movers near packing. Outbound: picking (single, batch, zone, wave), packing, dispatch. Reverse: returns processing.

Good practice: accurate bin locations, barcode or RFID scanning, a WMS (warehouse management system), cycle counting instead of annual full counts, 5S for organisation (sort, set in order, shine, standardise, sustain), safety training, and tracking pick accuracy and orders per hour.

Check yourself

• Daily demand is 80 units, lead time is 5 days and safety stock is 150. What's the reorder point?
• Why use cycle counting instead of a yearly stock take?
• Classify these for ABC: phone models, phone cases, charging cables.