Inventory basics: A Practical Course with Yusuf Al-Najjar

Start with the purpose

Place Inventory basics inside a realistic personal-finance, operations, or workplace decision. Name the result a learner is trying to produce and the constraints that make the skill useful.

How Inventory basics actually works

These are the load-bearing ideas. Everything later in the course is an application of one of them, so it is worth reading slowly and returning to when something stops making sense.

• Economic order quantity balances two costs. The economic order quantity is the square root of twice annual demand times order cost, divided by annual holding cost per unit. At that quantity, total annual ordering cost and total annual holding cost are exactly equal.
• Turnover measures how hard stock works. Inventory turnover equals cost of goods sold divided by average inventory, and days of inventory equals 365 divided by turnover. A turnover of 6 means stock sits roughly 61 days before it sells.
• Safety stock covers variability. Reorder point equals expected demand during lead time plus safety stock. Safety stock exists to absorb variability, so it scales with the variability of demand and with the square root of lead time, not with average demand.

Misconceptions worth clearing early

Each of these is common, understandable, and expensive to leave in place. Recognising them now saves rework later.

• Ordering in bulk for the unit discount alone. The per-unit price drop is visible on the invoice while holding cost is not. Fix: Add holding cost, obsolescence risk, and tied-up cash to the comparison before accepting the discount.
• Counting stock only once a year. Full physical counts are disruptive, so they get deferred. Fix: Cycle count high-value items monthly and low-value items quarterly, so discrepancies surface while they are still traceable.
• Comparing figures from different periods or definitions. Both numbers look valid in isolation. Fix: State the period and definition next to every figure before comparing them.

Build the mental model

Connect the key terms as a process rather than a word list. Use this sequence: organize the records, calculate or compare options, document assumptions, and recommend an action.

Catch the common miss

Compare a surface-level attempt with one that shows complete records, sensible assumptions, accurate calculations, and a usable recommendation. Explain the single difference that matters most.

Watch the whole process

Trace a model from the initial prompt to a decision worksheet and practical plan. Mark each point where the learner must observe, choose, or verify rather than act automatically.

Worked example: Order quantity for a part with 12,000 units of annual demand

Follow each step and predict the next before you read it. Predicting first is what turns a demonstration into practice.

1. Annual demand is 12,000 units, each order costs 60 to place, and holding costs 4 per unit per year.
2. The formula gives the square root of (2 × 12,000 × 60 / 4), which is the square root of 360,000, or 600 units.
3. Orders per year are 12,000 / 600 = 20, so annual ordering cost is 20 × 60 = 1,200.
4. Average inventory is 600 / 2 = 300 units, so annual holding cost is 300 × 4 = 1,200 as well.

The two cost curves meeting at equal values marks the optimum, and the total cost curve is so flat nearby that ordering 20% above it raises total cost by under 2%.

Where this usually goes wrong

Watch for these while you work through the demonstration rather than afterwards.

• Ordering in bulk for the unit discount alone. The per-unit price drop is visible on the invoice while holding cost is not. Fix: Add holding cost, obsolescence risk, and tied-up cash to the comparison before accepting the discount.
• Counting stock only once a year. Full physical counts are disruptive, so they get deferred. Fix: Cycle count high-value items monthly and low-value items quarterly, so discrepancies surface while they are still traceable.
• Comparing figures from different periods or definitions. Both numbers look valid in isolation. Fix: State the period and definition next to every figure before comparing them.

Practice with scaffolding

Repeat the model with one detail changed. Keep the prompts visible and say or write the reason for each choice before continuing.

Check before feedback

Use complete records, sensible assumptions, accurate calculations, and a usable recommendation as the quality test. Make one self-correction before asking the tutor to review the result.

Read the situation

Translate the scenario into a clear task. Separate facts, assumptions, constraints, and information that is interesting but not relevant to Procurement.

Choosing well under real constraints

Applied work is mostly judgement under limits: less time, less information, and more competing goals than a textbook example allows. These are the decision rules that hold up in practice.

• Two options look similar on price: Compare total cost including delivery, fees, and time, not the quoted figure.
• A number surprises you: Trace it back to its source before acting; surprising figures are often definitional, not real.
• You must recommend under uncertainty: Recommend the option that stays acceptable if your main assumption is wrong.

Reading the situation before acting

Before choosing an approach, state three things explicitly: what result the situation actually requires, which constraints are fixed rather than preferences, and what evidence would tell you the approach is working. Skipping this step is the most common reason competent work solves the wrong problem.

• Economic order quantity balances two costs. The economic order quantity is the square root of twice annual demand times order cost, divided by annual holding cost per unit. At that quantity, total annual ordering cost and total annual holding cost are exactly equal.

Practitioner notes

Small pieces of working knowledge that rarely appear in introductory material.

• Use ABC classification: the top fifth of items by value typically accounts for the large majority of inventory value and deserves most of the counting and control effort.
• Record stockouts as a number rather than a feeling, because without a count you cannot trade service level against holding cost in any principled way.

Compare real options

Generate two workable approaches and test both against the purpose. Do not hide the tradeoff; name what each option improves and what it gives up.

Make the reasoning visible

Produce a decision worksheet and practical plan and attach a short decision note. The note should make the result auditable, not merely confident.

Use the rubric, not a feeling

Review the work for complete records, sensible assumptions, accurate calculations, and a usable recommendation. Record evidence for each judgment so feedback points to something observable.

Diagnostic checklist

Run this before you revise anything. Diagnosing first prevents the common failure of polishing the parts that were already fine.

• Check: Ordering in bulk for the unit discount alone — is this present in your work?
• Check: Counting stock only once a year — is this present in your work?
• Check: Comparing figures from different periods or definitions — is this present in your work?
• Check: Confusing profit with cash — is this present in your work?

The quality bar

This is what finished work looks like in this field. Use it as the standard for your revision rather than a general sense of improvement.

• Every figure is traceable to a source and a period
• Assumptions are stated where a reader can test them
• The recommendation names its main risk and what would change it

Diagnose before editing

Name the symptom, then ask what decision or missing step produced it. Choose the cause you can address rather than changing everything at once.

Revise and compare

Make one purposeful revision and compare the two versions. Keep the change only if it improves the intended result without creating a larger problem.

Define a finishable brief

Choose a specific audience, result, and boundary for the Vendor communication capstone. Reduce scope until the project can be finished and reviewed in one focused cycle.

Bringing the parts together

A capstone is judged on coherence, not on the number of techniques it includes. Return to the core ideas and make sure the work demonstrates them rather than decorating them.

• Economic order quantity balances two costs. The economic order quantity is the square root of twice annual demand times order cost, divided by annual holding cost per unit. At that quantity, total annual ordering cost and total annual holding cost are exactly equal.
• Turnover measures how hard stock works. Inventory turnover equals cost of goods sold divided by average inventory, and days of inventory equals 365 divided by turnover. A turnover of 6 means stock sits roughly 61 days before it sells.
• Safety stock covers variability. Reorder point equals expected demand during lead time plus safety stock. Safety stock exists to absorb variability, so it scales with the variability of demand and with the square root of lead time, not with average demand.

Standards that make the work credible

These are the marks of work that would be taken seriously by someone who does this professionally.

• Every figure is traceable to a source and a period
• Assumptions are stated where a reader can test them
• The recommendation names its main risk and what would change it

Practitioner notes

Small pieces of working knowledge that rarely appear in introductory material.

• Use ABC classification: the top fifth of items by value typically accounts for the large majority of inventory value and deserves most of the counting and control effort.
• Record stockouts as a number rather than a feeling, because without a count you cannot trade service level against holding cost in any principled way.

Build with checkpoints

Plan foundation, first draft, verification, and revision milestones. At each checkpoint, save evidence instead of relying on memory.

Present and continue

Present a decision worksheet and practical plan with a concise rationale. Use the final rubric to choose one strength to retain and one next practice target.