inventory control

LEARNING OBJECTIVES

  • Explain what inventory is.

  • Reasons for holding inventory.

  • Factors influencing inventory.

  • Interpret stock control diagram.

  • Explain buffer stock.

  • Implications of poor inventory control.

WHAT IS INVENTORY?

  • Items, component parts, and raw materials used in production or sold.

  • Types: Raw materials, Work-in-progress, Finished Goods.

TYPES OF INVENTORY

  1. Raw Materials: Unprocessed materials for products.

  2. Work-in-Progress: Partially finished products.

  3. Finished Goods: Packaged products ready for sale.

INVENTORY CONTROL

  • Maintaining optimal inventory levels.

  • Keeping inventory low to reduce costs.

  • Ensuring inventory does not run out.

FACTORS INFLUENCING INVENTORY LEVELS

  • Demand: Needs to satisfy customer demand and growth.

  • Stockpile Goods: Accumulating inventory to manage seasonal demand.

  • Cost of Holding Inventory: Higher costs lead to lower inventory levels.

  • Working Capital: Limited capital constrains inventory purchasing.

  • Type of Inventory: Inventory 'life' affects management strategies.

  • Lead Time: Longer lead times necessitate higher minimum inventory.

  • External Factors: Future shortages can increase inventory levels.

BUFFER STOCK

  • Extra stock for unforeseen demand.

  • Helps businesses cope with demand fluctuations.

IMPLICATIONS OF POOR INVENTORY CONTROL

  • Storage costs.

  • Opportunity cost of tied-up capital.

  • Spoilage costs for perishables.

  • Administrative and financial costs associated with orders.

  • Unsold inventory due to reduced demand.

  • Shrinkage and theft risk.

HOLDING TOO MUCH INVENTORY

  • Space requirements increase.

  • Capital not earning rewards.

  • Risk of spoilage.

  • Higher administrative costs.

  • Potential unsold inventory.

  • Increased theft risk.

HOLDING TOO LITTLE INVENTORY

  • Risk of lost sales and customers.

  • Production halts due to delayed deliveries.

  • Higher ordering costs.

  • Missed bulk purchase discounts.

JUST-IN-TIME (JIT) MANAGEMENT

  • JIT aims to increase efficiency and reduce waste.

  • Inventory purchased only as needed for production.

ADVANTAGES OF JIT

  • Improved cash flow.

  • Reduced waste and costs.

  • More factory space for production.

  • Enhanced supplier relationships.

  • Improved worker motivation and responsibility.

DISADVANTAGES OF JIT

  • Dependence on supplier reliability.

  • Higher ordering costs.

  • Loss of bulk buying advantages.

  • Risk of supply interruptions.

  • Possible reputation loss from late deliveries.

WASTE MINIMIZATION

  • Refrigeration for perishables.

  • Predict demand patterns.

  • Adopt stock rotation.

  • Utilize computerized control systems.

  • Adjust prices to influence sales.

  • Rapid transportation for perishables.

  • Creative waste reduction methods.

COMPETITIVE ADVANTAGE FROM LEAN PRODUCTION

  • Lean production uses less time, inventory, materials, labor, space, and suppliers.