Inventory Management

Uses of InventoryInventoryTo satisfy the expected customer demand (Anticipation Inventory)To provide buffer between successive operations (Decoupling Inventory or Work-in-process Inventory)To protect against price increases and to take advantage of Quantity DiscountsTo satisfy periods of seasonal high demand (Seasonal Inventory)To avoid stock outs (Safety Stock or Buffer Stock)To minimize the total cost by ordering the Economic Order Quantity (Cycle Stock)To act as a buffer between various elements of the Supply-Chain (Suppliers-Producers-Distributors-Wholesalers-Retailers-Customers) (Pipeline or Transit Stock)

Role of Other Functional Departments in Inventory ManagementFinance DepartmentInformation systems departmentHuman resources departmentMarketing departmentMaterials DepartmentFormulation of annual budget for materialsInformation regarding payments to be made to suppliers Salaries & wages of employees in the materials departmentInformation regarding the ordering cost and carrying cost figures to be used in order size calculationsRecruitment of employees in the Materials DepartmentTraining & development of employees in the materials departmentRequirement of suitable software in the materials departmentTraining of employees in the materials department regarding use of ERP and other softwareInstallation of ERP or other software in the materials departmentFeedback regarding quality requirements of finished goods and thus the materials usedInformation regarding changes made in the materials quality to enhance the quality of finished goodsDemand forecast of finished goods so that raw materials can be procured accordinglyPerformance appraisal of employees in the materials department

Types of Inventory Management SystemsInventory Management SystemsIndependent Demand Inventory Management SystemsDependent Demand Inventory Management SystemsMaterial Requirements Planning (MRP) SystemsJust-In-Time (JIT) SystemsHybrid MRP-JIT SystemsABC Classification of ItemsFor RetailersFor ManufacturersEOQ Model for ManufacturersCategory A ItemsCategory B ItemsCategory C ItemsPeriodic Review SystemBasic Economic Order Quantity (EOQ) ModelEOQ Model with Quantity DiscountsEOQ Model with Differential DiscountingEOQ Model with Safety StockEOQ Model with Intentional Shortages

The Retailers Model of Inventory Management (Economic Order Quantity, EOQ Model)

Safety Stock

Safety stock determination when DDLT follows Normal Distribution Curve

Service Level

EOQ Model with Intentional Shortages

Production Model of Inventory Management (Manufacturers Model)