Inventory Management Overview
In this lesson, you’re expected to:
– understand the basics of inventory management
– learn about the types and functions of inventory
– explore how to manage inventory systems
Inventory is a stock of items held to meet future demand.
Key questions in inventory management:
• What to order?
• How much to order?
• When to order?
These are easy questions, but difficult to answer!
Inventory management involves having the right inventory at the right quantity, in the right place, at the right time, and at the right cost.
For example, a retail store that sells multiple goods (packed food items, groceries, clothes, electronics goods etc.) does not usually store all the goods in the store. In other words, a part of the entire stock of goods is kept at a warehouse. The sum of the goods in the store and at the warehouse at any particular point in time is known as the inventory.
Without inventories, customers would have to wait (or they will take their business somewhere else).
• The price of some raw materials may exhibit seasonal fluctuation, so the organization might want to take advantage of low-price opportunities.
• There might be quantity discounts when buying large volumes.
• The organization wants inventory of goods to display to customers.
• Meet variations in customer demand.
• Meet unexpected demand.
• Smooth seasonal or cyclical demand.
• Smooth production.
Enlarged version: http://bit.ly/2oDjmLv
1) Raw Materials (RM): unprocessed, basic material that is used to produce goods.
2) Component Parts (CP): sub-components that can be assembled into finished goods.
3) Work-in-Process (WIP): unfinished material, being processed to become finished goods.
4) Finished Goods (FG): ready for sale material.
• Congestion stock
• Safety stock
• Seasonal stock
• Pipeline stock
• Speculative stock
• It is stock that is expected to be replenished regularly in order to meet customers’ needs.
• Safety stock, as its name implies, the portion of the inventory used to hedge against uncertainties (at least partially) such as:
– Supply: delayed delivery of material
– Demand: unexpected demand variations
• Safety stock is not expected to be replenished on a regular basis.
• Seasonal stock refers to when you accumulate inventory in anticipation of future peak demands (e.g. high-season).
• It can be used in production ’smoothing’. For example, when an organization is expecting demand that is higher than its production capacity in the period. In that case, the organization can produce in excess of demand during the low-season, in order to build up inventory to be used in the high-season.
• Material waiting for a highly utilized process.
• Material in transit between stocking locations.
• Hedge against price variations.
• Buy more when the price is low, so you can buy less when price is high.