Page 15 - Logistics News - Issue 02 - 2024

INVENT O R Y MAN A GEMENT

cost of goods sold and ending inventory. FIFO works by selling Cons:
the oldest inventory, while LIFO assumes the last things in (the • Dependency on supplier agreements.
newest inventory) are sold first. Retailers often use FIFO to • Potential for lower profit margins.
ensure that perishable goods are sold before expiration.
14. Economic order quantity (EOQ)
Pros: Economic order quantity (EOQ) is a formulaic inventory control
• Accurate inventory valuation. method that marks up the best possible order quantity for stock
• Optimised tax strategies. to lower inventory and related costs. Businesses can use this
• Improved financial reporting. strategy to balance too much stock and too little, such as when
Cons: manufacturers use EOQ to determine ideal order quantities for
• Complexity in implementation. raw materials.
• Potential for distortions in financial statements.
Pros:
13. Consignment inventory • Cost-effective inventory ordering.
The consignment inventory strategy includes the supplier • Optimised inventory levels.
retaining ownership of goods and supplying them to a • Improved cash flow.
consignee, who sells them. This helps businesses reduce Cons:
inventory risk while continuing to have access to many products. • Assumptions may not always hold true.
For example, a retail store can employ this strategy as it accepts • Complexity in calculation.
inventory, expands its product offerings and retains limited
inventory costs. 15. Perpetual inventory management
Perpetual inventory management helps measure inventory
Pros: levels in real-time using inventory demand and supply software
• Reduced inventory risk. or barcode technology. This strategy is good for retailers who
• Improved cash flow. want to keep track of inventory movements. It also helps reduce
• Increased product variety. stock-outs and improves the overall efficiency of the business.

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