Inventory Management

DEFINITION OF INVENTORY
• An inventory is a stock or store of goods.
• Small things such as pencils, paper clips, screws to large items such as
machines, trucks, construction equipment, and airplanes.
• The items they carries in their inventory relate to the kind of business
it engages in.
DEFINITION OF INVENTORY
MANAGEMENT
• Responsible for the control of stock levels within an organizationa
EXAMPLES:
• MANUFACTURING FIRMS
- Carry supplies of raw materials, purchasd parts, partially finished items,
and finished goods as well as spar parts for machines, tools, and other
supplies.
• DEPARTMENT STORES
- Carry clothing, furniture, carpeting, stationery, cosmetics, gifts, cards, and
toys.
• HOSPITALS
- Stock drugs, surgical supplies, life-monitoring equipment, sheets and
pillow cases
KEY TERMS/ KEY WORDS
STOCKS
- Are stores of materials that are held in an organization
- They are formed whenever materials are not used at the time they
become available – and whenever there are breaks in the smooth
flow of materials
INV
 KINDS OF
INVENTORIES
• Raw materials and purchased parts
• Partially completed goods, called WORK-IN-PROCESS WIP
• FINISHED-GOODS INVENTORIES
• TOOLS AND SUPPLIES
• MAINTENANCE AND REPAIRS (MRO) INVENTORY
• GOODS-IN-TRANSIT TO WAREHOUSE, DISTRIBUTORS, OR CUSTOMERS
(PIPELINE INVENTORY)
FUNCTIONS OF INVENTORY
1. TO MEET ANTICIPATED CUSTOMER DEMAND
2. TO SMOOTH PRODUCTION REQUIREMENTS
3. TO DECOUPLE OPERATIONS
4. TO PROTECT AGAINST STOCKOUTS
5. TO TAKE ADVANTAGE OF ORDER CYCLES
6. TO HEDGE AGAINST PRICE INCREASES
7. TO PERMIT OPERATIONS
8. TO TAKE ADVANTAGE OF QUANTITY DISCOUNTS
OBJECTIVES OF INVENTORY CONTROL
INADEQUATE CONTROL OF INVENTORIES
RESULTS: UNDER AND OVERSTOCKING OF ITEMS

UNDER STOCKING RESULTS IN MISSED DELIVERIES, LOST SALES, DISSATISFIED CUSTOMERS,

AND PRODUCTION BOTTLENECKS

OVERSTOCKING UNNECESSARILY TIES UP FUNDS THAT MIGHT BE MORE PRODUCTIVE

ELSEWHERE

OVERALL OBJCTIVE OF INVENTORY MANAGEMENT IS TO ACHIVE SATISFACTORY LEVELS OF

CUSTOMER SERVICE WHILE KEEPING INVENTORY COSTS WITHIN REASONABLE BOUNDS.
TWO MAIN CONCERS OF INVENTORY
MANAGEMENT
• ONE IS THE LEVEL OF CUSTOMER SERVICE, THAT IS TO HAVE THE
RIGHT GOOS, IN SUFFICIENT QUANTITIES, IN THE RIGHT PLACE, AT
THE RIGH TIME

• THE OTHER IS THE COSTS OF ORDERING AND CARRYING

INVENTORIES.
REQUIREMENTS FOR EFFECTIVE
INVENTORY MANAGEMENT