Inventory Control in Services:

To reveal the way in which inventory control is done in service organizations, we have certain two areas to describe: a departmental store and an automobile service agency.

Department Store Inventory Policy

Stock keeping unit (SKU) is the common term utilized to recognize an inventory item. It recognizes each item, its manufacturer and its expense. The number of SKUs becomes large even for small departments. For instance, if bed sheets carried in domestic items departments are attained from three manufacturers in three quality levels, three sizes and four colours. Altogether there are 3 × 3 × 3 × 4 = 108 items. For such large numbers individual economic order quantities may not be calculated for each item by hand.

Generally purchasing of housewares is done from distributors instead of from manufacturers. Distributor handles products from several manufacturers and has the advantage of fewer orders and faster shipping time. Moreover, the distributor's sales personnel can visit the housewares weekly and count all of the items they supply to this department. Then, in line with the replenishment level that has been established by the purchaser, the distributor's salesperson places orders for the buyers. It saves the department time in counting inventory and placing orders. The lead time for receipt of stock from a housewares distributor is two or three days. Therefore, the safety stock is quite low, and the purchaser establishes the replenishment level so as to supply only sufficient items for two to three day lead time, plus expected during the period until the distributor's salesperson's next visit.