INVENTORY MANAGEMENT

By Aatma Maharajh
 OUTLINE

• What is Inventory?
• Why does Inventory Exist?
• Inventory Management in Manufacturing
• Why the Need for Inventory?
• Types of Inventory
• What is the Problem with Inventory?
• The role of Inventory Management
 WHAT IS INVENTORY?

• Inventory may be defined as:

“…the stored accumulation of material resources in a transformation system.”

(Slack, Chambers & Johnston, 2007)

“ a stock of items kept to meet demand”

(Russell & Taylor, 2011)
 WHAT IS INVENTORY?

“Inventory includes all those goods and materials that are used in the production and
distribution processes.”

(Fogarty, Blackstone & Hoffmann, 1991)

 WHY DOES INVENTORY EXIST?

• Inventory exist where there is a difference in the timing of supply and demand.

• It can be used in any part of the transformation process.

• Consider the following: with the advent of agriculture, humans had to be able to store
excess crop from harvests for times of little to no crop.
INVENTORY IN MANUFACTURING
(SIMPLIFIED)
Includes:
Fixed Assets W.I.P/Finished Product
& Raw
materials W.I.P/Raw Manufacturin
Assets Material g Process
Inventory
(“Stores”)
Consumables
Includes:

Consumables
Office
Supplies

Consumer
product to
Finished

Non-
Manufacturin
g uses
 WHY THE NEED FOR INVENTORY?

• Customer Service
• Ordering Cost
• Setup Cost
• Labour and Equipment Utilisation
• Transportation Cost
• Payments to Supplier
(Krajewski & Ritzman, 2005)
 ELEMENTS OF INVENTORY MANAGEMENT

• Raw Materials

• Purchased parts and supplies

• Partially complete work in progress

• Items being transported

• Tool and Equipment

 TYPES OF INVENTORY

• Cycle Inventory

• Safety Stock Inventory

• Anticipation Inventory

• Pipeline Inventory

(Krajewski & Ritzman, 2005)

WHAT IS THE PROBLEM WITH INVENTORY?

Cost!!!!
WHAT IS THE PROBLEM WITH INVENTORY?

• Disadvantages to Inventory include:

• Tied up capital
• Storage, administrative and insurance cost
• Inventory can be damaged, deteriorate or become obsolete
• Inventory can be lost

(Slack, Chambers and Johnston, 2007)

 THE ROLE OF INVENTORY MANAGEMENT

“Inventory Control is the activity which organises the availability of items to the customers.
It co-ordinates the purchasing, manufacturing and distribution functions to meet the
marketing needs”.

(Wild, 2002)
 THE ROLE OF INVENTORY MANAGEMENT

• The objective of inventory Control is to optimise:

• Customer Service
• Inventory Cost
• Operating Cost

• Two basic types of inventory systems:

• Continuous Inventory Systems: A constant amount is ordered when inventory declines to a predetermined
level.
• Periodic Inventory Systems: An order is placed for a variable amount after a fixed passage of time.

(Russell & Taylor, 2011)