OPERATIONS MANAGEMENT

Inventory
management
MANAGING INVENTORY
JIT

AS LEVEL BUSINESS
Lesson
objectives:
analyse why businesses hold inventories and
the costs of holding inventories
analyse the advantages and disadvantages
of traditional inventory management holding
compare JIT and JIC
 take a look at these pictures, what do you think is the
difference? which is a manufacturer/wholesaler/retailer?

which businesses would benefit from a reduction of inventory

and which should have large inventories?
 INVENTORY
Many textbooks will use the term 'stock' instead of inventory. However,
inventory is the required term and complies with the accounting terms
used on a statement of financial position (balance sheet).

why hold inventories?

raw materials and components: purchased from suppliers - will be used
for the production line (when ready)
work in progress: raw materials being converted to finished goods
(depends on the time to complete the production; batch production
tend to have high work-in-progress level)
finished goods: completed products is held until sold
Inventory Management
what do you think are some problems that may arise with
inventory management?
Inventory Management
Problem that may arise:
insufficient inventories to meet unexpected change in
demand
out-of-date or obsolete inventories
inventory wastage due to mishandling
high inventory levels have high sotrage cost
poor management - late deliveries
cost opportunity cost (space or working capital tied up in goods in storage could
be put to other uses)
storage cost (e.g. refrigeration / insurance for storage)
risk of wastage
Inventory Management BENEFITS OF HOLDING STOCKS

reduce risk of lost sales

allows for continuous production
avoids the neeed for special orders from suppliers
(urgent orders)
large orders of new supplies reduce cost (buy in bulk)
 Knowledge Check (Fill in the blanks)
upcoming
key terms:
1. _____________ are materials and goods held by a business
and required to allow for the ___________ of products and
their supply to customers.
2. Inventory ____________ is the process of ordering, storing and INVENTORY
using a company's inventory. LEVEL
3. _____________ order quantity is the optimum or least-cost ECONOMIC
BUFFER
quantity of stock to re-order taking into account __________ STOCK-HOLDING
cost and _________ costs. RE-ORDER
4. ___________ inventory is the minimum inventory level that LEAD
should be held to ensure that continuous is production is MANAGEMENT
possible. DELIVERY
PRODUCTION
5. _________ quantity is the number of units ordered each time.
6. _________ time is the time between ordering new supplies
and their delivery.
7. Re-order ________ is the level of inventory that triggers a
new order to be sent to supplier.
 Knowledge Check (Fill in the blanks)

upcoming
key terms:
1. INVENTORY are materials and goods held by a business
and required to allow for the PRODUCTION of products and
their supply to customers.
2. Inventory MANAGEMENT is the process of ordering, storing
and using a company's inventory.
3. ECONOMIC order quantity is the optimum or least-cost
quantity of stock to re-order taking into account DELIVERY
cost and STOCK-HOLDING costs.
4. BUFFER inventory minimum inventory level that should be
held to ensure that continuous is production is possible.
5. RE-ORDER quantity is the number of units ordered each
time.
6. LEAD time is the time between ordering new supplies and
their delivery.
7. Re-order LEVEL is the level of inventory that triggers a new
order to be sent to supplier.
INVENTORY CONTROL CHARTS
Holding stock increases the possibility of cash flow problems. Stock-
control charts and optimum order size are used to reduce liquidity
problems. These include details on stock levels, usage rates, order
quantities and delivery times.

Optimum Order Size

EOQ (optimum)
INVENTORY CONTROL CHARTS
The overall objective of inventory (stock) control is to maintain inventory levels
to that the total costs of holding stocks is minimise. A popular method of
implementing stock control is through the use of inventory (stock) control
charts and algorithms that automate the process.
INVENTORY CONTROL CHARTS do you remember the key terms earlier?
can you label this diagram?

maximum inventory
• minimum inventory
• buffer inventory
• reorder level
• lead time.
INVENTORY CONTROL CHARTS

Amount of time between placing the Max level of stock a business

order and receiving the stock can or wants to hold

Acts as a trigger point, so that when

stock falls to this level, the next
supplier order should be placed

An amount of stock held as a

contingency in case of unexpected Minimum amount of product
orders (or delays from supplier) the business would want to
hold in stock.
Factors Affecting When / How Much Stock to Re-order

Lead-time from the supplier

How long it takes for the supplier to deliver the order
Higher lead times may require a higher re-order level
Implications of running out (stock-outs)
If stock-outs are very damaging, then have a high re-order
level & quantity
Demand for the product
Higher demand normally means higher re-order levels
what do you think are some benefits of
effective supply chain management?
Managing: people, inventory,
capital, information
improves
customer service
reduce operation
costs
improves
profitability
(reduce wasted
times, lost cost
efficient supply
chain)
JIT vs. JIC inventory
management

further reading / sources:

https://www.youtube.com/watch?v=8G-0xL84r2I
https://www.brighthubpm.com/methods-strategies/71540-real-life-examples-of-successful-jit-systems/
 JIT vs. JIC inventory
management
You will be divided into groups, each group will assign
members to be on JIT & JIC side. You will be assigned a
business-type, you will research and give arguments why this
business type should be JIC and JIT, then come up with a
conclusion.
then share to the class your thoughts on it.
CAR REPAIR SHOP
(GARAGE)
RETAIL STORES
(CLOTHES)
FURNITURE SHOPS
PHARMACY
LAPTOP
MANUFACTURER
HOSPITALS
MOTORBIKE
MANUFACTURERS