Question

Explain the different inventory classification models that can be used in inventory management.

Discuss the primary functions of a distribution center.

Answer 1

Inventory management can be said as ordering,storing and processing the resources or material of the company.Inventory management includes the management of raw materials, components, and finished products, as well as warehousing and processing such items.

Hence to manage inventory ,inventory classification models are there.Let us briefly discuss the models one by one .

1)Economic order quality Model

EOQ can be said as ideal qualtity order a company needs to purchase.The company should make purchase in such a way that it reduces inventory cost related to its holding,transfer,shortage and every related thing.

EOQ is to be decided on the basis of the two costs:Ordering Costs and Carrying Costs.These both cost are inversely proportional to each other,Means increse in one cause decrease of other.

2)ABC analysis

ABC analysis is also called as ‘Selective Inventory Control.’ This analysis of control is based on the logic that in any large number,there are generally a  few significant and many insignificant . This theory holds true in case of inventory also. An organization is maintaining several types of inventories hence same degree of control on all inventory is not being required.An organization follows selective approach to minimize the inventory.

3)Inventory Turnover Ratio

Its a accounting ratio that helps to establish relationship between average inventory and cost of inventory consumed or sold during the particular period.

Primary functions of a distribution center:

A distrubution centre can be said as a main point of or node in a supply network.

A Distribution center is formed to  store goods for shorter periods of time as orders are fulfilled generally on daily basis.

Distribution centre is being used to stock multiple products in large quantity.It also acts as warehouse in few situations.

At distribution Centre time between receiving, and shipping of goods is less as compared to the warehouses hence the distribution centre turnover is high.

The main or primary function of a distribution centre is not only to store goods but also a speedy movement of goods.Storage of goods is a temporary thing at this centre.

The distribution centre not only act as storage node but also as assembling point along with return of goods centre.

Distribution centre thus performs many function that helps in easy flow of the supply system of any organization.