Chapter Inventory Models 71 and Safety Stocks WHAT IS INVENTORY MANAGEMENT? Inventory is working capital and therefore the control of inventories is an important aspect of operations management. The basic questions in the management of inventory are: 1. How much inventory to keep; and 2. When? Before getting to a mathematical treatment of the above questions, let us understand the functions of inventory. (i) There are inventories for normal consumption requirements. Therefore, depending upon the average consumption rates and average lead times for procurement/manufacture of the material, inventories are kept at the appropriate times. (ii) A production process, however continuous it may be, is bound to have some interruptions; it may also have imbalances in the consumption and production rates of the materials at different stages. ‘These interruptions and imbalances make it necessary to keep stocks of inventory between the different stages of the operations. BASIC FUNCTION Inventory is needed for the definite consumption demand of materials, and to take care of the uncertainty involved in the usage or availability of the materials. The latter aspect is sometimes described by other authors as the ‘decoupling function’ of the inventory. It means that the various dependent operational stages in any production/operations process can act independent of each other, to some extent, if an inventory of materials is maintained atthe different stages of{production. The inventory ensures that one stage of production’ does not siffér because Of the non-fuhetiohing or mijfunctioning of the previous stage of prodiiction over which the former is dependent. The inventory taking care of the first aspect of normal consumption is called the normal inventory and the inventory taking care of the second aspect of uncertainty is called the safety stock or buffer stock of inventory.