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Inventory Management

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Inventory Management

CHAPTER

Operations Management

11

William J. Stevenson

Inventory Management

8th edition
McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

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Inventory Management

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Types of Inventories

Inventory: a stock or store of goods

Independent Demand

A

Dependent Demand

Raw materials & purchased parts • Partially completed goods called work in progress
• •

Finished-goods inventories
•

B(4)

C(2)

D(2)

E(1)

D(3)

F(2)

(manufacturing firms) or merchandise (retail stores)

Independent demand is uncertain. Dependent demand is certain.

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Types of Inventories (Cont’d) (Cont’

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Functions of Inventory

• •

Replacement parts, tools, & supplies Goods-in-transit to warehouses or customers

• • • •

To meet anticipated demand To smooth production requirements To decouple operations To protect against stock-outs

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Functions of Inventory (Cont’d) (Cont’
To take advantage of order cycles To help hedge against price increases To permit operations To take advantage of quantity discounts

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Objective of Inventory Control

• • • •

•

To achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds
• •

Level of customer service Costs of ordering and carrying inventory

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Effective Inventory Management
• • • •

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Inventory Counting Systems

A system to keep track of inventory A reliable forecast of demand Knowledge of lead times Reasonable estimates of
• • •

•

Periodic System