Elements of Inventory Systems
In this lesson, you’re expected to:
– understand how demand and supply processes influence inventory management
– learn about the factors affecting inventory decisions
At a high-level of abstraction, inventory is the central component of the system that mediates the supply and demand processes.
• We begin with a general, abstract way of looking at an inventory. We focus first on the inventory of only one item, at a single location.
• Every inventory lies between two activities: the supply processand the demand process.
• Demand process describes the various activities that reduce material from the inventory.
• However, even though it does not represent 100% of the reality – as is the case with any model – it is useful in building our understanding and expanding it to more complex models.
• As we saw earlier, inventory serves as a buffer to reconcile mismatches between supply and demand.
• It can be smooth or include unexpected lump sums.
• It can vary over time.
• It can exhibit different degrees of unpredictability.
• It can present different degrees of economies of scale.
• Suppliers’ capacity can vary (i.e. unlimited, limited/constrained).
• Whether there are delays in response, in order for products to be available (lead times).
• It can present different quality standards (i.e. defective products).
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– All orders are backordered
– Orders are lost
– Orders are substituted by another product
– There is no excess demand (deterministic demand)
Number of Items
– Goods are perishable
– Goods are not perishable
– Single period (one day, month, year…)
– Finite period (planning has a known finish time)
– Continuous review (inventory is continuously controlled)
– Periodic review (inventory is controlled in predetermined periods, such as once a week)