1. Do you know when should a physical inventory be taken?
A inventory should be taken at least once a year. If items are perishable, seasonal or highly demanded a inventory should be taken more often.
2. Explain can a computer help in forecasting future demand?
Yes, In the market today there are many computer software packages that can compute forecasted demand for goods held in inventory.
3. Do you know what does EOQ stand for?
EOQ stands for Economic Order Quantity.
4. Tell me can forecasting help in controlling inventory?
Yes, through the use of forecasts inventory levels can be set to meet the demands while keeping levels as low as possible.
5. Tell me what is forecasting?
Forecasting is the process of estimating the future demand of a product.
6. Tell me does the model always work?
No, the model only works for those cases that meet its assumptions.
Are those basic inputs that are converted into finished product through the manufacturing process. Raw materials inventories are those units which have been purchased and stored for future productions.
8. Do you know what is a order point?
A order point is a point in time at which a order is placed to replenish goods in inventory.
9. Do you know what is demand?
Demand is the quantity that customers are willing to buy. Demand can be found through forecasting and is needed to find the EOQ level.
10. Tell me what is an order quantity?
An order quantity is the amount of goods that an order requests be shipped to the store.
11. Tell me what types of forecasting can I do?
There are two types of forecasting qualitative and quantitative. Qualitative uses personal opinions to determine forecasts. Quantitative uses numerical data and statistical modeling to determine forecasts.
12. Explain what is lead time?
Lead time is the period of time from which a order for goods is placed until it is received by the store. Lead time is an important consideration for determining when orders should be placed.
13. Suppose I get a discount will it effect the EOQ model?
Yes, a discount will cause the basic EOQ model to fail. To use a discount in determine a EOQ you must use the EOQ model with quantity discounts.
14. Tell me what is Cycle Count?
A cycle count is an inventory auditing procedure, which falls under inventory management, where a small subset of inventory, in a specific location, is counted on a specified day. Cycle counts contrast with traditional physical inventory in that a full physical inventory may stop operation at a facility while all items are counted at one time.
It helps to see the difference between Actual stock and Book Stock. Book Stock is the stock available in the system.
15. Do you know what is the EOQ formula?
The EOQ formula is the square root of 2 times demand times order completion cost divided by carrying cost. The mathematical formula is square root of 2DS/C.
16. Tell me what do the letters in the EOQ and stocking cost formula stand for?
The letters in the formulas represent the quantity ordered(Q), the carrying cost of a unit(C), the demand for the units(D) and the cost of completing a order(S).
17. Tell us what does inventory affect in a store?
Inventory levels and their values can affect the income of the store, the amount of taxes paid, and the total stocking cost.
18. Tell me what skills make you great at what you do as an inventory specialist?
I am a stickler for perfection and organization. In addition to this, I possess great leadership qualities which make it easy for me to direct personnel to do their job properly. Possessing knowledge of accounting procedures makes it easy for me to manage related bookkeeping and budget management tasks.
19. Do you know what is interference?
Interference is a factor in forecasting demand. Interference is made up of all the factors that a forecaster has no control over. Factors that may be considered interference include natural disasters, unusual customer demands, or rare events in the business period.
20. Do you know as an inventory specialist, what are your specific duties?
Working as an inventory specialist, I am required to develop and implement an overall inventory management plan which includes materials procurement, inventory stock levels, and facility needs and personnel management. Additionally, I am required to provide direction to staff members who handle inventory control and make sure any overstocking or shortages are handled in a time efficient manner.
21. Explain me what is Opening Stock and Closing Stock?
At the beginning of a reporting period, or after a cycle count, the stock available in your inventory account is the Opening Stock. It is also called as Beginning Inventory.
So, there's an Opening Stock. Then, lots of transactions happens - Items are purchased and Sold. And finally Closing Stock is calculated.
Closing stock is the amount of inventory that a business still has on hand at the end of a reporting period. This includes raw materials, work-in-process, and finished goods inventory. The amount of closing stock can be ascertained with a physical count of the inventory. It can also be determined by using a perpetual inventory system and cycle counting to continually adjust inventory records to arrive at ending balances.
Closing Stock is an asset. In Inventory Account, it is under debit. In trading Account, it is under credit. Because, it is still not traded.
22. Tell me what makes EOQ work for inventory control?
The EOQ works if its four assumptions match the case it is used on. The assumptions are: A. Annual demand, carrying costs and ordering costs can be estimated. B. Inventory level is divided by 2, no safety stock, goods used uniformly and are gone by next order. C. Stock-out, customer responsiveness and other costs not considered. D. No quantity discounts.
23. Explain what is FOB Price and Landed cost?
In garment exporting, pricing of garments are mostly quoted on FOB (Free On Board). Free on board(freight on board) price means a price which includes goods plus the services of loading those goods onto some vehicle or vessel at a named location which i put in parenthesis. FOB (Source port) does not includes the shipping charge and Insurance. Where as FOB(destination) includes shipping charges and insurance cost.
Landed Cost is the total cost of a product once it has arrived at the buyer's door. This list of components that are needed to determine landed costs include the original cost of the item, all brokerage and logistics fees, complete shipping costs, customs duties, tariffs, taxes, insurance, currency conversion, crating costs, and handling fees. Not all of these components are present in every shipment, but all that are must be considered part of the landed cost.
Clearly it is advantageous to reduce the cost of each or any component of landed cost. Each one will allow the seller to lower the final selling price or increase the margin associated with that sale.
Last Cost = FOB + Costs levied on landing.
Margin taken = Sales Cost - Last Cost.
24. Explain me when should reorders be placed?
Times for reordering goods vary dependent on the control system you use and its lead time. In fixed order quantities reorders should be placed when the safety stock is reached. In fixed period systems the reordering is done at set time periods. In just in time systems reordering is based on matching the demand with supply. For just in time a close watch on inventory levels is needed so that reorders are placed before goods are out of stock.
25. Explain me what if there is no savings or the models produce even results?
If there is no savings a error in the calculations may have occurred or the model does not fit your case. For instances were the total stocking costs are even you may use either order quantity.
26. Explain who determines the optimal frequency for producing or ordering products?
☛ A cross-functional team or
☛ Only production planning or sourcing managers?
Several factors impact effective inventory planning. For example, marketing campaigns can play a role alongside sourcing. So a cross-functional team should set production and ordering schedules. Production alone determines lot sizes, usually based solely on minimizing production costs. By weighing all factors and using a sales and operations planning process (S&OP), cross-functional teams often reduce the company's replenishment stock by 50 percent and ensure that the right products are available for big promotions.
27. Explain why is procurement considered such an important part of inventory control?
Procurement is the backbone of inventory management. Inventory specialists have to create and maintain liaison with vendors and suppliers, and customers to ensure that supplies are obtained in a timely manner and that there are no shortages when the need arises.
28. Tell me what are the important considerations in inventory control?
For inventory control to work at its best a store must consider the costs of acquisition, carrying, ordering, and stock-out. the store must also look at its reordering system, its budgeting for inventory, insurance and forecasted demand.
29. Suppose inventory controls are followed, what can I expect?
By following your inventory policy you should be able to realize important advantages in inventory control. The first is reduced costs for inventories, along with reduced amounts of inventory. Theft and shrinkage should also be reduced if inventory policy is followed. The final benefit will be increased profits for the store.
Once you've reduced inventories, you'll have to put new processes in place to lower them even more over time. We use an analytical tool that highlights the biggest levers for continually reducing inventory. For example, instead of working to improve sales forecast accuracy from 70 percent to just 75 percent, establishing a team that's focused on reducing lead times from Asian suppliers may have more impact.
31. Tell me do you recalculate safety stock levels on a regular basis to ensure they are up to date?
Supply-savvy operations update their calculations about every three to six months to ensure that decisions are based on the most accurate information.
Companies with efficient inventory management create two task forces with linked action plans. The first task force identifies the root causes and determines ways to reduce the creation of new excess and obsolete stock. The second focuses on ways to sell off the stock more effectively. It provides the sales team with a list of top excess or obsolete products to push to ensure that they're discounting specified excess products.
33. Explain what is Weighted average Cost?
A weighted inventory average determines the average cost of all inventory items based on the inventory items' individual cost basis and the quantity of each item held in inventory.
When a business purchases items for inventory, the business may pay different prices for the inventory items. This price differential can apply to both different inventory items and the same inventory items purchased at different times.
The average cost is computed by dividing the total cost of goods available for sale by the total units available for sale. This gives a weighted-average unit cost that is applied to the units in the ending inventory.
Weighted Average Unit Cost = Total Cost of Inventory / Total Units in Inventory
For Ex:
Lets say, we buy item A for 10 AED. We have 10 qty of Item A.
Therefore, total cost of Item A is 10 x 10 = 100 AED.
In that we sold 3 items. 7 qty left in stock. Total cost of those 7 items = 7 x 10 = 70 AED.
After 3 months, item A cost is reduced to 8 AED. And then we bought 10 more for 8 AED.
Therefore, total cost = 8 x 10 = 80 AED.
Now, we have 7 items bought for 10 AED and 10 items bought for 8 AED.
Total 17 items.
Therefore total cost = 70 AED + 80 AED = 150 AED.
Now, when we calculate the weighted average cost of the 17 items which are to be sold = 150 AED/17 = 8.82 AED.
Many decisions about inventory levels are strategically important. So instead of relying solely on the supply organization to decide, executives need to have a major say in the fundamental issues that impact inventory management-everything from determining the right breadth and complexity of product offerings to optimal plant and distribution footprints.
Inventories are those completely manufactured products which are ready for sale. Stocks of raw materials and work-in-process facilitate production, while stock of finished goods is required for smooth marketing operations. Thus, inventories serve as a link between the production and consumption of goods.
