inventory

• Types of Inventory

  Raw materials and components

  Work in progress

  Finished goods
• What Inventory Management and Control is Important

  • The business damage from stock-outs or having the wrong inventory can be significant

  • However, it is crucial to manage inventory carefully as it often ties up a significant value of capital (cash) that could be used elsewhere in the business

  • These days, inventory management is much easier due to widely available IT systems
• Main Influences on the Quantity of Inventory Held

  • Need to satisfy demand

  • Need to manage working capital

  • Risk of inventory losing value
• Inventory Control Charts

  Maximum level

  Re-order level

  Lead time

  Minimum inventory level

  Buffer stock
• Key factors that depend on inventory re-order

  • Lead-time from the supplier

  • Implications of running out (stock-outs)

  • Demand for the product
• Benefits and Drawbacks of Holding Low or High Inventory Levels

  LOW INVENTORY LEVELS -

  Lower inventory holding costs

  Less cash tied up in working capital

  Consistent with operating “lean”
• Benefits and Drawbacks of Holding Low or High Inventory Levels

  HIGH INVENTORY LEVELS -

  Production fully supplied – no delay

  Potential for lower unit costs by ordering in bulk

  Better able to handle unexpected changes in demand or need for higher output