2. What is Inventory?
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1.A physical resource that a firm holds in stock with the
intent of selling it or transforming it into a more
valuable state
2. Purpose of inventory management:
•How many units to order
•When to order
•When to return or replace
3. Reasons We Keep Inventory
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Adding value through inventory:
Quality – Inventory can act as a buffer against poor quality.
Speed – Location of inventory can have a significant impact
on fulfilling customer demand
Flexibility – Location and level of anticipatory inventory
directly effect the firm’s flexibility to meet demand
Cost – Direct effect: purchasing, delivery, manufacturing
Indirect: inventory holding costs, stockouts
4. • Raw materials
• Purchased parts and supplies
• Work-in-process (partially completed) products (WIP)
• Items being transported
• Tools and equipment
Types of Inventory
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5. What is Inventory Management?
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Inventory management is the process of keeping track of inventory, and
having the delicate balance of supply and demand firmly mastered.
6. The basic building blocks of inventory management are:
Sales Forecasting/Demand Management
Sales and Operations Planning
Production Planning
Material Requirements Planning
Inventory Reduction
Inventory Management
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7. Objectives of Inventory Control
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Maximize the level of customer service by avoiding stockouts
Promote efficiency in production and purchasing by minimizing
the cost associated with providing an adequate level of customer
service
8. Inventory Costs
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Carrying cost
cost of holding an item in inventory
Ordering cost
cost of replenishing inventory
Shortage cost
temporary or permanent loss of sales when demand
cannot be met
9. Sales Forecasting/Demand
Management
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Accurate sales forecasting allows a company to effectively control inventory,
production facilities, labor, inventory levels and logistics, and is the base of
which most all other operations within the company function.
10. 10
Inventory Reduction
•Inventory reduction is about eliminating excess inventory, improving inventory turn rates,
increasing inventory turnover, and meeting on time delivery.
•Excess inventory ties up money and needs to be reduced in order to free up cash for
investment in revenue-growth activities.
