Chapter 1

1. Chapter 1 The Importance of Inventory Management

2. The Importance of Inventory Management Supply Chain Management – the control of materials from suppliers to customers – is a very crucial problem for all organizations in any sector of the economy. Inventory Management is the function responsible for all decisions about stock in an organization. It makes decisions for policies, activities and procedures to make sure the right amount of each item is held in stock at any time.

3. The Importance of Inventory Management Inventory management in the manufacturing sector is vital for the continuity of the operations. Even if a firm outsources manufacturing, it must still stock the products. The total investment in inventory is enormous; the capital tied up in raw material, WIP, finished products provides a very important potential for improvement. The cost of holding stock is about 20% of its value a year.

4. The Importance of Inventory Management Modern IT has created new possibilities for more sophisticated and efficient control of supply chains. Most organizations can reduce their material flow costs substantially. Inventory control techniques are very important in this development process. Inventory management cannot be isolated from other functions like purchasing, production and marketing.

5. Organizations Hold Stock to • allow for demands that are larger than expected, or at unexpected times; • allow for deliveries that are delayed or too small; • decouple adjacent operations; • avoid delays in passing products to customers; • take advantage of price discounts on large orders; • allow the purchase of items when the price is low and expected to rise; • allow the purchase of items that are going out of production or are difficult to find; • make full loads for delivery and reduce transport costs; • give cover for emergencies.