What is inventory? What are its varieties? Inventory is the buffer between two related sequential activities. Between purchase and production, between the beginning and completion of production, and between production and marketing, buffers are needed. Buffer means a cushion to fall back on. Production should not suffer due to some difficulty in purchase of raw materials. Marketing should not suffer due to some difficulty in production. If the business has some stock of raw materials, a temporary difficulty in purchase will not effect production since the stock of raw materials can be used. If there is a stock of finished goods marketing will not be effected due to any temporary hurdle in production.… Read the rest
Inventory Management Concepts
ABC System of Inventory Control
Inventories include raw material inventory, work-in process inventory and finished goods inventory. The goal of effective inventory management is to minimize the total costs – direct and indirect – that are associated with holding inventories. However, the importance of inventory management to the company depends upon the extent of investment in inventory. It is industry-specific.
In the case of a manufacturing company of reasonable size the number of items of inventory runs into hundreds, if not more. From the point of view of monitoring information for inventory control, it becomes extremely difficult to consider each one of these items. The ABC analysis comes in quite handy and enables the management to concentrate attention and keep a close watch on a relatively less number of items which account for a high percentage of the value of annual usage of all items of inventory.… Read the rest
Case Study: Inventory Management Practices at Walmart
About Walmart
Wal-Mart Stores, Inc. is the largest retailer in the world, the world’s second-largest company and the nation’s largest nongovernmental employer. Wal-Mart Stores, Inc. operates retail stores in various retailing formats in all 50 states in the United States. The Company’s mass merchandising operations serve its customers primarily through the operation of three segments. The Wal-Mart Stores segment includes its discount stores, Supercenters, and Neighborhood Markets in the United States. The Sam’s club segment includes the warehouse membership clubs in the United States. The Company’s subsidiary, McLane Company, Inc. provides products and distribution services to retail industry and institutional foodservice customers.… Read the rest
Inventory Control: Benefits of Holding Inventories
Inventory management is primarily about specifying the shape and percentage of stocked goods. It is required at different locations within a facility or within many locations of a supply network to precede the regular and planned course of production and stock of materials.
The intent of inventory management is to continuously hold optimal inventory levels. The benefits of holding inventories are;
1. Avoiding Lost Sales
Losing business is the last part where you, as a business owner wants. Without the necessary goods in hand, which are ready to be exploited, most businesses will surely lose its business and market share. There are some customer are willing to wait, especially when the product they want must be made to order or it is not sidely available from your competitors.… Read the rest
Vendor Managed Inventory (VMI)
Vendor Managed Inventory (VMI) is a supply chain practice where the inventory is monitored, planned and managed by the vendor on behalf of the consuming organization, based on the expected demand and on previously agreed minimum and maximum inventory levels. In its simplest form, Vendor Managed Inventory is the process where the vendor assumes the task of generating purchase orders to replenish a customer’s inventory. VMI is a term that is used to describe many types of supply chain initiatives. Traditionally, success in supply chain management derives from understanding and managing the trade off between inventory cost and the service level.… Read the rest
Make-or-Buy Decisions in Purchase Management
The make-or-buy decision is the act of making a strategic choice between producing an item internally (in-house) or buying it externally (from an outside supplier). The buy side of the decision also is referred to as outsourcing. Make-or-buy decisions usually arise when a firm that has developed a product or part–or significantly modified a product or part–is having trouble with current suppliers, or has diminishing capacity or changing demand.
Make-or-buy analysis is conducted at the strategic and operational level. Obviously, the strategic level is the more long-range of the two. Variables considered at the strategic level include analysis of the future, as well as the current environment.… Read the rest