Inventory management

• factors to consider when manufacturing and storing goods

  • Quality of the product
  • Volume of the product that can be manufactured at any one time
  • Storage availability in a warehouse
  • procedures for mainting and managing quality
• Purpose of an inventory system

  • ensure inventory is readily available at any one time
  • ensure production continues
  • avoids delays to customers orders
  • ensure over-stocking doesn't happen
  • avoids inventory deteriorating
• consequences of too little inventory

  • Production could stop therefore employees and machines sit idle
  • customers might not receive their orders on time which could result in complaints
  • business could gain bad reputation and image
• consequences of having too much inventory

  • Increased financial costs
  • inventory could go to waste or deteriorate, resulting in inventory needing to be discarded
  • higher risk of inventory being stolen
• Maximum inventory level 


  highest amount of inventory that can be stored at one time
• minimum inventory level


  the lowest amount of inventory that should be stored at one time
• Buffer inventory 


  the inventory is used when inventory is below the inventory level to allow production to continue
• Re-order level


  The quantity at which more inventory is ordered
• Re-order quantity 


  the quantity of inventory that has to be ordered to bring back to the maximum inventory level
• Lead time 


  the time that passes between ordering inventory and it arriving
• Just in Time (JIT) 


  Just in time is a method of inventory control that keeps cost levels to the minimum
• Benefits of the JIT system

  • Less cash is tied up in inventory
  • Less storage and warehouse space is required
  • Wastage should be reduced as only inventory required is ordered
  • changes in the external enviorment will have a reduced impact
• Costs of JIT system

  • Reliable suppliers are required so the inventory can be delivered on time
  • Production can stop if inventory is not delivered when required
  • Less environmentally friendly as more journeys with less inventory will be made