Inventory management involves the management of stock.

The aim of inventory management is to

prevent stock outs and have smooth flow of goods. The stock can be classified as working/cycling stock;
demand based, safety/buffer stock; allowing to absorb unexpected fluctuation in demand, speculative
stock; anticipates problems with in the supply channel. When dealing with stock all of these come into
play and question can be asked hold or not hold stock.

When holding stock it could be because of ordering costs, variability in demand, variability in supply,
economies of production and stock outs. The could be from the problems with the lead time, saving
admin costs, prevention of loss of sales and preventing stock outs or changes in demand. Inventory
strategy can be placed were stock outs can be reduced, reduce lead time and increase product output.

The trade-off between stock leads to loss of sales. It becomes waste of promotion and marketing costs.
It leads to potential delays and stoppages within the manufacturing process. Inventory is managed by
the use of either using pull or push system. Pull system is were product completion is delayed until
customer order with the use of just in time. E.g. putting dye on a sweater to meet the customer
requirements of having a particular colour. Whereas the push system produces according to the forecast
and previous sales, therefore pushing inventory into the market.

When dealing with inventory there are dependent

and independent demand systems. Dependant demand systems are MRP, MRP II, JIT, and JIT II.
Independent demand systems are order quantities, replenishment systems, peatro analysis and
forecasting. Dependant demand systems comply with the pull system whereas the independent demand
system complies with the push system.

Fixed re-order level and fixed time re- ordering is needed to taken into consideration when dealing with
inventory. Fixed re-order involves deciding the minimum level of order being acceptable and orders are
needed to made once reached this level. Fixed time re-ordering is were orders are ordered at a fixed
time. E.g. month, week, day. Inventory can be improved by using techniques such as ABC analysis,
replenishment systems, re-order quantities, forecasting and inventory replacement models.

Forecasting can be used to predict how much inventory is needed and how many numbers of units
might be sold. Forecasting is not 100% accurate and therefore shorter the time period the less
forecasting becomes. i.e. responding quickly to the changing demand patterns. To reduce inventory a
move towards pull system can be made and therefore inventory is replenished based on actual
customer demands. (Continuous Replenishment CR) CR aims to free flow order fulfilment and delivering
systems. It reduces the pipeline inventory, thus eliminates stock outs.

Vendor Management Inventory (VMI) can also be used as its aim is to optimise product availability at
retailer whilst minimising inventory. VMI works by suppliers tracking product sales and inventory at their
customers. Enterprise Resource Planning is another way of being effective were a technology integrates
with company's core business to enable to achieve specific business objectives.