
Inventory • Stock of items held to meet future demand • Inventory management answers two questions • How much to order • When to order
Reasons To Hold Inventory • Meet unexpected demand • Smooth seasonal or cyclical demand • Meet variations in customer demand • Protect supply chain against uncontrollable external factors • Take advantage of price or quantity discounts • Hedge against price increases
Approaches to Inventory Management • Just-in-case inventory (overstocking) • Carry high inventories to ensure high customer service level (expensive!) • Just-in-time inventory (understocking) • Carry minimal inventory levels to control costs in exchange for risk of more stockouts
Inventory Costs • Carrying Cost • cost of holding an item in inventory • Examples include warehousing, handling, pilferage, spoilage and investment costs • Ordering Cost • cost of replenishing inventory • Shortage Cost • temporary or permanent loss of sales when demand cannot be met
Materials With Materials With Item Independent Demand Dependent Demand Demand Company Customers Parent Items Source Material Finished Goods WIP & Raw Materials Type Method of Forecast & Booked Calculated Estimating Customer Orders Demand Planning EOQ & ROP MRP Method Dependent versus Independent Demand
Push/Pull View of Supply Chains Procurement, Customer Order Manufacturing and Cycle Replenishment cycles PUSH PROCESSES PULL PROCESSES Customer Order Arrives