Third Presentation:

Inventory Management
Reporter: Tracy M. Bognot

Outline:
Inventory Management
 Differing Viewpoints About Appropriate Level of
Inventory in a Firm that Exists among:
o Financial Manager
o Marketing Manager
o Manufacturing Manager
o Purchasing Manager
 Common Techniques for Managing the Inventory
o ABC Inventory System
o Two-bin Method
o Economic Order Quantity (EOQ) Model
o Just-In-Time (JIT) System
o Materials Requirement Planning (MRP)
System
 International Inventory Management
 The reporter introduced the topic by presenting the importance of having a great inventory
management.

Since the first component of the cash conversion cycle is the average age of inventory, the
company should strive to manage its inventory efficiently and effectively. The objective for managing
the inventory is to turn over them as quickly as possible without losing sales due to stockouts.

She then presented the common techniques in managing the inventory at to which she
presented five of them, namely: the ABC Inventory System, the Two-bin Method, the EOQ Model, the JIT
System and the MRP System.

The ABC inventory system is done by dividing the entire inventory into three categories –
category A, category B and category C – where the each are characterized by their value and cost
significance, and also by their number in units.
 Category A usually comprises items that are high in value and relatively small in number, thus
these are the firm’s highly important materials. Category B usually comprises items that are of moderate
value and moderate in number, thus these are the firm’s moderate important materials. Category C
usually comprises items that are of little value and of large size, thus, this inventory category is classified
as the least important materials.

The reporter thereby explained the remaining inventory techniques by explaining each of them
and giving illustrations.

Under two-bin method, there exists two chambers aligned vertically where the lower chamber
or also called as the in use stock comprises those items that will be taken first for the production, and
when it is depleted, they can get the products from the above chamber or also called as the reserve
stock. Hence, the production can continue and there will be noi stockouts.

Under the EOQ model, the company can use it for determining an item’s optimal order size,
which is the size that minimizes the total of its order costs and carrying costs. It also included the
reorder point which is the point at to which the firm should place an order. The formula was also
presented in the succeeding slides.

Under the JIT system, it does just what the name suggests. It involves having products arrive as
soon as the customer orders the. It requires precise and constant monitoring of the demand because
overestimating it can result to bloated inventories and underestimating it can result to inventory
stockouts.
 Under the MRP system, it applies the EOQ concepts and by means of a computer, it stimulates
the product’s bill of materials, inventory status and manufacturing processes. Its objective is to lower
the firm’s inventory investments without impairing the production.

The reporter ended her presentation by explaining how the international inventory
management is more complicated than for those purely domestic firms because when the raw
materials, intermediate goods and the finished products must be transported in a long distance, there
will inevitably be more days, confusion, damage, theft and other difficulties than occur in one-country
operation, as shown in the above slide.