INVENTORY MANAGEMENT

Inventory Management

Inventory Management

Introduction

Managing inventory is the process a business uses to obtain, organize, track, and replenish requisite stock. Businesses that sell any kind of tangible merchandise have inventory. For example, manufacturing companies must keep track of the materials they need to assemble their products, as well as the finished products. Retailers and wholesalers must order the products they plan to sell and know when to replenish their stock. If a company manages its inventory well, it is usually able to avoid either running out of merchandise or becoming overstocked, both of which can prove quite costly. Inventory management can also help decision makers determine things like which products are sold most often and at what times demand reaches its peaks. (Wren 2009, 41-42)

 Every company that produces physical goods must maintain levels of inventory, which include its natural materials, unfinished products, and finished products that have not yet been shipped out of the company. All of the tasks and activities related to this maintenance are known as inventory control. This includes keeping detailed records on the amount and value of a company's inventory and ensuring that materials and products are appropriately stored, accessible when needed, and not in oversupply. Inventory control also sometimes includes the final assessments and protection of the finished goods within the company before purchasers take possession; these activities involve recording the receipt of goods from production, inspecting them, and handling them in storage.

Discussion

Inventory management has received much attention in recent years, primarily from the point of view of eliminating as much inventory as possible. This paper will explore the role of inventory in the logistics system, then explain some of the traditional approaches to inventory management. Next, indicators of inventory management problems will be highlighted, as will ways to rectify those difficulties. Finally, the paper will conclude by detailing several techniques available to minimize excess inventory levels throughout the pipeline while continuing to satisfy customer needs. (Andrew 2009, 25)

The purpose of inventory control is to ensure that the company has sufficient amounts of finished goods to meet consumer demand in a timely way without creating an oversupply of products, which are costly to store. Companies with inventory strive to maintain a smooth flow of acquiring the necessary materials, making products, selling products, moving the products out of the company, and collecting on the sale of the products. Inventory is linked to all other aspects of production and sales, since changes in sales strategies can affect the levels of inventory on hand. (Stevenson 2005, 52)

 The primary challenge of inventory control is to balance a company's inventory ordering costs against its inventory carrying costs in an effort to keep down total costs. Ordering costs are all of the expenses that are incurred by a company in purchasing materials and supplies for its inventory. They can expenses for postage, telephone service, order-processing software, and the salary of employees who handle purchase orders. Carrying costs (also called holding costs) are those spent on “carrying” the inventory, meaning protecting and storing it. These costs can include expenses for property insurance, rent or storage, and any monetary losses if the materials ...