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Inventories are materials and supplies that a business or institution carry either for sale or to provide inputs or supplies to the production process. All businesses and institutions require inventories . Often they are a substantial part of total assets. Financially, inventories are very important to manufacturing companies. On the balance sheet, they usually represent from 20% to 60% of total assets.
Inventory Management ties up capital, requires handling, uses storage space, deteriorates, sometimes becomes obsolete, requires insurance, incurs taxes, can be stolen or gets lost. Inventory must be considered at each of the planning levels with production planning concerned with overall inventory, master planning with end items and materials requirements planning with components parts and raw material. The primary function of inventory is buffering and decoupling. It serves as a shock absorber between customer demand and the manufacturer’s production capability, between input materials required for an operation and the output of the preceding operation, between the manufacturing process and the supplier of raw materials.
Objectives of Inventory Management
Many different organizational units have an interest in the creation and control of inventories. These objectives often conflict and must be resolved through negotiation and consideration of the overall benefits to the company. Some of the major objectives that underlie the use of inventories are:
Customer Service: Customer Service is the ability of a company to satisfy the needs of the customer. Inventory Management helps achieve this in several ways, including delivering in a timely manner, buffering against uncertainty, and providing variety to meet individual customer needs.
Buffering against Uncertainty: Inventory Management are often held because either the demand for goods or the replenishment of goods is subject to uncertainty. Anticipated demand for products is often forecasted in various ways.Inventories allow delivery even when demand exceeds those that were expected. Sometimes there is also uncertainty regarding supply; that is, how quickly can goods be replenished? Transportation, quality problems, excessive scrap, and supplier lead times are often factors contributing to uncertainty for which Inventory Management can compensate.
Inventory Management ties up capital, requires handling, uses storage space, deteriorates, sometimes becomes obsolete, requires insurance, incurs taxes, can be stolen or gets lost. Inventory must be considered at each of the planning levels with production planning concerned with overall inventory, master planning with end items and materials requirements planning with components parts and raw material. The primary function of inventory is buffering and decoupling. It serves as a shock absorber between customer demand and the manufacturer’s production capability, between input materials required for an operation and the output of the preceding operation, between the manufacturing process and the supplier of raw materials.
Objectives of Inventory Management
Many different organizational units have an interest in the creation and control of inventories. These objectives often conflict and must be resolved through negotiation and consideration of the overall benefits to the company. Some of the major objectives that underlie the use of inventories are:
Customer Service: Customer Service is the ability of a company to satisfy the needs of the customer. Inventory Management helps achieve this in several ways, including delivering in a timely manner, buffering against uncertainty, and providing variety to meet individual customer needs.
Buffering against Uncertainty: Inventory Management are often held because either the demand for goods or the replenishment of goods is subject to uncertainty. Anticipated demand for products is often forecasted in various ways.Inventories allow delivery even when demand exceeds those that were expected. Sometimes there is also uncertainty regarding supply; that is, how quickly can goods be replenished? Transportation, quality problems, excessive scrap, and supplier lead times are often factors contributing to uncertainty for which Inventory Management can compensate.
