3.4.5 Managing inventory and supply chains

• Inventories are the raw materials, work in progress and finished goods held by a firm to enable production and meet customer demand
• Some influences on the amount of inventory:

  • Demand and expected demand - failure to have goods available for sale is very costly, demand may be seasonal or unpredictable
  • Need to manage working capital - holding inventories ties up cash in working capital, there is an opportunity cost with inventory holding
  • Risk of inventories losing value - longer stocks are held, the greater risk that they cannot be used or sold
• The cost of holding stock:

  • obsolesce risk - could become obsolete
  • interest costs - tying up capital
  • cost of storage - warehouse cost
• What can be seen in the inventory control chart?


  the amount of inventory a business holds

  
• What are the benefits of not holding stocks?

  Lower inventory costs

  Less capital tied up
• What are the benefits of a inventory control chart?


  Efficiency
• What is the primary goal of inventory management?

  Maintain right stock levels to meet demand
• What does supply chain management (SCM) oversee?

  The flow of goods from raw materials to consumers
• Why is Inventory and Supply Chain Management important?

  • Improves efficiency and productivity
  • Reduces costs and waste
  • Ensures consistent supply to meet demand
  • Helps maintain competitive advantage
• What are the consequences of poor inventory management?

  Leads to stockouts, loss of customers, waste
• What is the definition of raw materials in inventory management?

  Essential items for production processes
• What does Work-in-Progress (WIP) refer to?

  Partially completed goods in production
• What are finished goods?

  Completed products ready for sale
• What does MRO stock refer to?

  Items needed for maintenance and operations
• What is the purpose of stock control?

  • Ensures right amount of stock
  • Prevents shortages or excess storage costs
• What is buffer stock?

  Minimum stock kept to prevent stockouts
• What is a benefit of buffer stock?

  Ensures availability, prevents lost sales
• What is a drawback of buffer stock?

  Higher holding costs
• What is reorder level?

  Stock level at which a new order is placed
• What is a benefit of maintaining a reorder level?

  Avoids stockouts
• What is a drawback of reorder level?

  Requires accurate demand forecasting
• How can faster lead times improve a business?

  Improve flexibility in stock management
• What does lead time refer to?

  Time taken to receive new stock after ordering
• What is stock rotation?

  Ensuring older stock is used first
• What is a benefit of stock rotation?

  Reduces waste, especially in perishable goods
• What is a drawback of stock rotation?

  Requires effective tracking
• What are the inventory management strategies?

  1. Just-in-Case (JIC)

  • High stock levels for unexpected demand

  1. Just-in-Time (JIT)

  • Ordering stock only when needed

  1. Economic Order Quantity (EOQ)

  • Formula to minimize total costs
• What is the Just-in-Case (JIC) strategy?

  Holding high stock levels to meet unexpected demand
• What is a benefit of the JIC strategy?

  Prevents stockouts, ensures availability
• What is a drawback of the JIC strategy?

  High storage costs, risk of obsolete stock
• What is the Just-in-Time (JIT) strategy?

  Ordering stock only when needed, reducing waste
• What is a benefit of the JIT strategy?

  Lower storage costs, less waste
• What is a drawback of the JIT strategy?

  Requires reliable suppliers, risk of stockouts
• What does Economic Order Quantity (EOQ) aim to do?

  Minimize total ordering and holding costs
• What is a benefit of using EOQ?

  Optimizes cost efficiency
• What is a drawback of EOQ?

  Requires accurate data
• What are the costs associated with inventory?

  • Holding (Storage) Costs
  • Ordering Costs
  • Stockout Costs
• What are holding (storage) costs?

  Costs related to warehousing and insurance
• What is a benefit of holding costs?

  Protects against stockouts
• What are ordering costs?

  Administrative costs of purchasing stock