Inventory Management Strategy

• Inventory/stock


  The amount of raw materials, work-in-progress and finished goods that a business has on hand at any particular point in time
• Inventory management is another crucial part of operations management, and the strategies applied to the management of inventory will have a significant impact on transformations processes
• Advantages of Holding Stock

  • Reduces lead times between order and delivery
  • Making products in bulk may reduce costs as there are economies of scale in purchasing inputs. This could be cheaper than the cost of holding the stock once it is made
  • Stocks give the opportunity for a business to generate immediate revenue. It is very hard to generate revenue from partially transformed inputs
• Disadvantages of Holding Stock

  • The costs associated with holding stock, including storage charges, spoilage, insurance, theft and handling expenses
  • The cost of obsolescence, which can occur if stock remains unsold
• Just-in-time (JIT)


  One means of managing stock where the business makes only enough products to meet demand
• JIT approach


  • Allows retailers to display a wider range of products as they need to store less and can order in response to consumer demand
  • Saves money as there are no expensive holding and insurance costs
  • Shrinkage costs and losses due to obsolescence are also minimised
• Requirements for JIT


  • Very flexible operations function with flexible processing
  • Very high ability to respond quickly to changes in market demand
  • Reliable supplier deliveries which must be received at the appropriate time