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Fundamental Principles of Inventory Management

Understanding the fundamental principles of inventory management should be a basic requirement of most everyone that works in the supply chain. Managing inventory stock of any kind properly is a key to the success of an organization. This is even more critical in healthcare as having what is needed for patient care has to be balanced with the financial implications and costs.

The following topics will be addressed during this educational session(s).


  1. Purpose of inventory, inventory classifications/categories and types of stock
  2. Financial implications: Cash flow, asset vs. expense, inventory valuation, FIFO, LIFO, average cost, market value
  3. Costs of inventory: Carrying costs, ordering costs, stock-out costs, labor costs
  4. Warehousing: Site selection, costs, layouts, receiving, locator systems
  5. Management: Planning and replenishing, economic order quantity (EOQ), Pareto analysis, ABC concept, safety stock, inventory shrinkage, stock rotation, shelf life
  6. Ordering processes: Standardization, single sourcing, supplier partnerships, using distribution channels vs. buying direct
  7. Capacity issues: Seasonality, contingency plans, disaster planning
  8. Inventory performance: Turn-over rates, service levels, customer service issues
  9. Accuracy: Perpetual vs. periodic physical counts, cycle counts
  10. Disposal: Reasons for disposal, surplus inventory, obsolete inventory, methods of disposal, legal issues, hazardous materials
  11. Inventory systems: JIT, stockless/low unit of measure (LUM), supplier managed, consignment, point of use

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