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
