Literature Review on Inventory Management with Practical Examples

In today’s world every business tries to strike a balance in inventory between what is needed and what is demanded, considering the major factor of cost cutting/reduction. This control is called Inventory management or inventory control. Inventory is basically assets (goods and materials) which are stock of any business. Inventory management focus on the capacity of the inventory, the place in which it is located so that one can use it when needed, the supply chain management of the raw materials and goods. Inventory management deals with the demand forecasting, asset management of the raw materials and goods, inventory carry cost, forecast, pricing of goods, validation of goods, to forecast the demand of future. This helps the top level manger to understand and coordinate with the supply chain management or production management, and quality management.

Satisfactory level of service

Most company measures the ability to satisfy the customer by the following 3 factors / methods

• Number of order which act per schedule
• Number of order which are shipped as per schedule
• The idle time in inventory as well as shortage

Minimizing inventory investments

Most company try to minimize the money associated with inventory so as to improve profitability of the company. This is measured using inventory turnover ratio

(Measures how quickly the inventory is getting out of system to the consumer)

Its calculated using formula- Sales / inventory or cost of goods sold / average inventory [1]

Efficient inventory control

Efficient inventory control includes how the inventory are scheduled properly, no delays between sniffing of raw materials and goods. The amount of raw materials determines the workforce and other factors. Every company will incur fixed cost and vertical cost. There should be a balance between the fixed cost and variable cost.

Necessity of inventory of a company

Table 1- To illustrate how an inventory is used in end of month

Factories which a company considers to get excess demand

Fulfil demand- Consider an instant where a customer wants to buy 100 DVD disks from shop A. But the shop A has only 50. So the customer goes to Shop B. He gets the 100 DVD disks he wanted. So from next time onwards the customer may go only to shop B directly. Hence to avoid this the shop has to evaluate and forecast property how much is required

To have progress in operations: A company must have certain purchased items like the raw materials and goods sold in order to manufacture its product. Running out of only one item can prevent a manufacturer from completing the production of its finished goods.

Lead Time: the time that lapses between the order placing (production and purchase order issued in the factory floor) and actually receiving the ordered. The more and more the lead time, the more and more of the quantity of goods the company should must carry in stock.

“Illustration: Just-in-time manufacturing firm, like Nissan in Smyrna, Tennessee, maintain extremely low levels of inventory. 18 times per day it takes delivery on truck seats. But the steel mills may have a lead time of 3 months. That means to say a firm which uses steel produced at the mill must order minimum 3 months in advance.”[2].

Requirements leveler: Inventory is mainly used to maintain a steady rate of output [mainly to avoid the hiring cost and training the new personnel], while deter