SCM CHAP 4- INVENTORY MANAGEMENT
A key decision in any product-based supply chain is how much inventory to keep on hand
Inventory refers to: All the items, goods, merchandise, & materials held by a business for selling in the
market and earn a profit.
Inventory is usually one of the company’s largest assets so careful mgmt of that asset is an essential
business requirement.
Maintaining adequate Optimized Inventory Levels allows a company to fill customer orders
immediately.
Maintaining adequate Materials Inventory allows a company to support manufacturing
operations and the production plan while avoiding delays.
Failure to manage inventory adequately can lead to significant issues and inefficiencies through
the SC Including:
Dissatisfied Customer
Lost Sales & Revenue
Higher Costs
Inventory can also become a liability if it becomes unstable due to (DOES)
:
Expiration
Obsolescence (obsolete outdated)
Damage
Spoilage
**Inventory is an Asset however, carrying too much inventory can be a significant Liability
**Too much inventory ties up capital. Storage costs can be applied, and companies may have to
pay for Security, Insurance, Taxes, etc.
There are FOUR main categories of Inventory:
1. Raw Materials
2. Work In Process (WIP) sometimes called Work-in-Progress
3. Finished Goods
4. Maintenance, Repair, and Operating (MRO) Supplies
RAW MATERIAL INVENTORY
RMI-are converted via manufacturing process into components & products.
Every company that produces a product starts with some type of raw material, component part, or
starting material
Companies can either buy from a supplier and have delivered to the operation when needed or buy
and hold a larger quantity for strategic reasons
A key decision in any product-based supply chain is how much inventory to keep on hand
Inventory refers to: All the items, goods, merchandise, & materials held by a business for selling in the
market and earn a profit.
Inventory is usually one of the company’s largest assets so careful mgmt of that asset is an essential
business requirement.
Maintaining adequate Optimized Inventory Levels allows a company to fill customer orders
immediately.
Maintaining adequate Materials Inventory allows a company to support manufacturing
operations and the production plan while avoiding delays.
Failure to manage inventory adequately can lead to significant issues and inefficiencies through
the SC Including:
Dissatisfied Customer
Lost Sales & Revenue
Higher Costs
Inventory can also become a liability if it becomes unstable due to (DOES)
:
Expiration
Obsolescence (obsolete outdated)
Damage
Spoilage
**Inventory is an Asset however, carrying too much inventory can be a significant Liability
**Too much inventory ties up capital. Storage costs can be applied, and companies may have to
pay for Security, Insurance, Taxes, etc.
There are FOUR main categories of Inventory:
1. Raw Materials
2. Work In Process (WIP) sometimes called Work-in-Progress
3. Finished Goods
4. Maintenance, Repair, and Operating (MRO) Supplies
RAW MATERIAL INVENTORY
RMI-are converted via manufacturing process into components & products.
Every company that produces a product starts with some type of raw material, component part, or
starting material
Companies can either buy from a supplier and have delivered to the operation when needed or buy
and hold a larger quantity for strategic reasons
