What is Inventory Management?
Inventory
Inventory: A stock or store of goods.
Examples
Manufacturing firms carry supplies of raw materials, purchased parts, finished items, spare parts, tools,.... Department stores carry clothing, furniture, stationery, appliances,... Hospitals stock drugs, surgical supplies, life-monitoring equipment, sheets, pillow cases,... Supermarkets stock fresh and canned foods, packaged and frozen foods, household supplies,...
The Nature and Importance of Inventories Inventories are a vital part of business
Necessary for operations Contribute to customer satisfaction
Inventories represent a significant portion of total assets Sale of merchandise (inventory) is a major source of revenues for retail and wholesale businesses
Types of Inventories Raw materials & purchased parts Partially completed goods, called work-inprogress (WIP) Finished-goods inventories (manufacturing firms) or merchandise (retail stores) Replacement parts, tools, & supplies Goods-in-transit to warehouses or customers (pipeline inventory)
Functions of Inventory
1. 2. 3. 4. 5. 6. 7. 8.
To meet anticipated demand: Anticipation stock – average demand To smooth production requirements: Seasonal inventories To decouple operations: Buffer inventories To protect against stock-outs: Safety stock – uncertainty To take advantage of order cycles: Cycle stock - batch To help hedge against price increases To permit operations: Work-in-process, pipeline inventories To take advantage of quantity discounts
Inadequate Control of Inventories Inadequate control of inventories can result in both under- and overstocking of items.
Understocking (too few) results in missed deliveries, lost sales, dissatisfied customers, and production bottlenecks (idle workers or machines).
Resulting underage cost.
Overstocking (too many) ties up funds that might be more productive elsewhere.
Resulting overage cost. Goal: matching supply with