Management of Operations: Inventory Management

Overview of Inventory Management

Inventory management is the supervision of stock items for a company.
It encompasses sourcing, storing, and selling inventory- be it finished goods, raw material, or supplies.

Inventory management is vital to improve cash flow, prevent oversupply or undersupply.
Effective inventory management can help reduce storage cost keeping overhead expenses in check.
It can assist in providing better customer service by ensuring products are always available when required.
It aids in forecasting demand, making it crucial for capacity planning.

Just in Time (JIT): This method reduces storage and holding costs by ordering inventory as needed.
Economic Order Quantity (EOQ): Ideal quantity to order that minimises total costs associated with ordering and holding inventory.
ABC Analysis: This method classifies inventory based on its value and relevance.
First In, First Out (FIFO): This method ensures items received first are sold first, preventing aging stock.
Last In, First Out (LIFO): This technique assumes that goods purchased last are sold first.

Demand forecasting: Incorrect forecasts can lead to overstock or stock-out situations.
Managing multiple locations: Coordinating inventory across various sites can be complex.
Seasonality: Customer demand can vary, making it a challenge to maintain apt inventory levels.
Inflation and currency fluctuation can affect the cost of inventory.
Technology adoption: Upgrading systems for inventory management can be costly and require training.

JIT: Reduces holding costs but relies heavily on suppliers’ reliability.
EOQ: Minimises costs but needs regular reevaluation.
ABC Analysis: Prioritises resources but can leave low-value items neglected.
FIFO: Prevents obsolete stock but might not be ideal in swiftly changing markets.
LIFO: Useful in times of inflation but can result in outdated inventory.