You are on page 1of 2

Examples of raw materials:

Grains such as wheat and rice.

Vegetables such as carrots and onions.

Meat such as beef and chicken.

Wood from a tree.

Honey from a bee's nest.

Minerals or metal from a mine.

Crude oil.

Some of the basic features of the traditional inventory management system are:

1. Agreements

Agreement with supplier was basic part of traditional system where focus was to avoid payment full
price for incoming inventory in advance. It also involves demanding price contracts and discounts in
exchange of consistent orders for specific periods. Today most of the interaction with suppliers is done
in real time with the on go payment options with suppliers as well as delivery agents.

2. Manual monitoring of stock level

These traditional systems also include simple eye assessment when a store manager would stand in the
middle of store and based on visual observations, decide which items are short in inventory and need
replenishment. The system was also based on manual calculations being made on stock level using Fixed
Order Quantity where particular amount of order was placed once stock reaches a particular level, or
Fixed Order Interval where order was placed at predefined intervals without considering the current
stock.

3. Inventory Storage

Large spaces were needed in warehouses to store inventory as at that time large inventory only meant
god delivery and service to customers. However with focus on freeing the cash flow tied in inventory
and realization of harmful effects of excess inventory, cost effective measures are used in modern
inventory management system which focus on minimizing the storage space and costs associated with
inventory and hence reducing inventory levels.

4. Order placement
Orders were placed manually on a telephone, fax, mail, etc unlike the modern technology driven
systems where integrated software system takes care of placing and processing orders without
employee input.

Min-Max is a way of organizing inventory replenishment using the following simple calculation: Min
value is the order point (we are running out of the goods), while Max is the quantity of the goods we
need. Subtracting Min from Max we get the reorder quantity.
Using this calculation is the simplest way to prevent stock-out. It gives us the data needed to file an
order with a supplier or a manufacturer in a timely manner.
Min-Max provides us with a relatively precise reorder point (a.k.a. reorder trigger level). Once our
operation hits this point, as calculated using Min-Max, we revert to using the so-called economic order
quantity (EOQ).