Inventory

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Conceptual Model

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Category	Subcategory	Attributes	Examples	Purpose
By Function	Stock Inventory	Basic replenishment items	Groceries, apparel, electronics	Meet regular customer demand.
	Safety Stock	Buffer against demand fluctuations	Extra units of popular products	Mitigate stockouts.
	Seasonal Inventory	Items for specific seasons/events	Christmas decor, summer apparel	Capture seasonal demand.
	Dead Stock	Obsolete or unsellable items	Outdated tech, expired food	Identify for liquidation or disposal.
By Ownership	Owned Inventory	Retailer-purchased stock	Products in storage or store shelves	Full control by the retailer.
	Consignment Inventory	Vendor-owned until sold	Branded products provided by suppliers	Reduces upfront costs for the retailer.
	Vendor-Managed Inventory (VMI)	Inventory managed by the supplier	Fast-moving consumer goods (FMCG)	Streamlines replenishment.
By Lifecycle Stage	Raw Materials	Inputs for in-house production	Packaging materials, bulk ingredients	Supports product manufacturing.
	Work-in-Progress (WIP)	Partially completed products	Semi-finished baked goods, electronics	Tracks unfinished inventory.
	Finished Goods	Ready-to-sell products	Packaged snacks, shoes	Drives sales directly.
	Returns and Damaged Goods	Items returned or damaged	Defective appliances, mispicked items	Plan for repairs or refunds.
By Demand Type	Fast-Moving Inventory	High turnover rate	Snacks, toiletries	Frequent restocking required.
	Slow-Moving Inventory	Low turnover rate	Specialty tools, high-end furniture	Requires discounting or promotions.
By Storage Location	On-Site Inventory	Stored within the retail location	Shelves, backroom stock	Immediate access for customers.
	Off-Site Inventory	Stored externally	Distribution centers, warehouses	Supports large-scale operations.
By Classification	High-Value Inventory	Expensive, high-margin items	Luxury watches, premium electronics	Requires tighter security measures.
	Perishable Inventory	Time-sensitive items	Fresh produce, dairy	Needs rapid turnover and cold storage.
	Non-Perishable Inventory	Long shelf-life products	Canned goods, clothing	Allows for long-term storage.
	Hazardous Inventory	Dangerous or regulated items	Cleaning chemicals, batteries	Requires compliance with safety laws.
	Bulk Inventory	Large quantities purchased or stored	Wholesale items, palletized goods	Economical purchasing strategy.

Inventory Modelling Tools

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Model	Purpose	Key Formula/Concept	Applications
Economic Order Quantity (EOQ)	Minimize total inventory costs (ordering + holding)	\(\text{EOQ} = \sqrt{\frac{2DS}{H}}\)	Bulk ordering optimization
Reorder Point (ROP)	Determine when to place a new order	\(\text{ROP} = (d \times L) + \text{SS}\)	Avoid stockouts during lead time
ABC Analysis	Prioritize inventory management based on value	Categorize inventory into A (high), B (moderate), C (low) value based on consumption	Inventory prioritization
Newsvendor Model	Optimize inventory for single-period products	\(Q^* = F^{-1}\left(\frac{C_u}{C_u + C_o}\right)\)	Seasonal or perishable goods
Inventory Turnover Ratio	Measure how efficiently inventory is sold	\(\text{Turnover} = \frac{\text{COGS}}{\text{Average Inventory}}\)	Identify slow-moving inventory
Base Stock Model	Maintain consistent inventory levels	\(\text{Base Stock Level} = d \times L + \text{SS}\)	High variability in demand
Safety Stock Calculation	Buffer against demand and lead time variability	\(S = Z \times \sqrt{(L \cdot \sigma_d^2) + (d^2 \cdot \sigma_L^2)}\)	Avoid shortages during variability
Dynamic Programming Models	Optimize over multiple time periods	Minimizes costs dynamically considering future demand.	Seasonal inventory planning
Stochastic Inventory Models	Address uncertainty in demand and lead times	\((Q, R)\) Model: Orders triggered at \(R\), with order size \(E\).	FMCG, pharmaceuticals
Lot Sizing Models	Optimize batch sizes for production or orders	Examples: Silver-Meal Heuristic, Least Unit Cost (LUC)	Manufacturing, wholesale
Simulation Models	Analyze complex inventory scenarios	Uses simulations to model performance under varying demand, lead times, or disruptions.	Logistics, warehousing

References

• https://en.wikipedia.org/wiki/Inventory