Chapter 13 Inventory Management
What is inventory?
Inventory: the accumulations of materials, customers or information as they flow through
processes or networks.
Physical inventory (stock): the accumulation of physical materials such as components,
parts, finished goods or physical (paper) information records.
Queues: accumulations of customers, physical as in a queuing line or people in an airport
departure lounge, or waiting for service at the end of phone lines.
Databases: stores for accumulations of digital information, such as medical records or
insurance details.
Managing these accumulations is called ‘inventory management’.
All processes, operations and supply networks have inventories
Most things that flow do so in an uneven way. It is the same in operations (airport for example). In
fact, because most operations involve flows of materials, customers and/or information, at some
points they are likely to have material and information inventories and queues of customers waiting
for goods or services.
Inventories are often the result of uneven flows. If there is a difference between the timing or the
rate of supply and demand at any point in a process or network then accumulations will occur.
If an operation or process can match supply and demand rates, it will also succeed in reducing its
inventory levels. But most organizations must cope with unequal supply and demand, at least at
some point in their supply chain.
There is a complication when using this ‘water flow’ analogy to represent flows and accumulations
(inventories) of information. Inventories of information can either be stored because of uneven flow,
in the same way as materials and people, or stored because the operation needs to use the
information to process something in the future.
1
, Customer information may be used for targeting promotional activities. In this case the inventory of
information has turned from a transformed resource into a transforming resource, because it is
being used to transform other information rather than being transformed itself. So, whereas
managing physical material concerns ordering and holding the right amounts of goods or materials
to deal with the variations in flow, and managing queues is about the level of resources to deal with
demand, a database is the accumulation of information but may not cause an interruption to the
flow.
Managing databases is about the organization of the data, its storage, security and the retrieval
(access and search).
Why should there be any inventory?
There are plenty of reasons to avoid accumulating inventory where possible.
So why have inventory?
Inventories provide many advantages for both operations and their customers. The task of
operations management is to allow inventory to accumulate only when its benefits outweigh its
disadvantages. Some of the benefits of inventory:
2
What is inventory?
Inventory: the accumulations of materials, customers or information as they flow through
processes or networks.
Physical inventory (stock): the accumulation of physical materials such as components,
parts, finished goods or physical (paper) information records.
Queues: accumulations of customers, physical as in a queuing line or people in an airport
departure lounge, or waiting for service at the end of phone lines.
Databases: stores for accumulations of digital information, such as medical records or
insurance details.
Managing these accumulations is called ‘inventory management’.
All processes, operations and supply networks have inventories
Most things that flow do so in an uneven way. It is the same in operations (airport for example). In
fact, because most operations involve flows of materials, customers and/or information, at some
points they are likely to have material and information inventories and queues of customers waiting
for goods or services.
Inventories are often the result of uneven flows. If there is a difference between the timing or the
rate of supply and demand at any point in a process or network then accumulations will occur.
If an operation or process can match supply and demand rates, it will also succeed in reducing its
inventory levels. But most organizations must cope with unequal supply and demand, at least at
some point in their supply chain.
There is a complication when using this ‘water flow’ analogy to represent flows and accumulations
(inventories) of information. Inventories of information can either be stored because of uneven flow,
in the same way as materials and people, or stored because the operation needs to use the
information to process something in the future.
1
, Customer information may be used for targeting promotional activities. In this case the inventory of
information has turned from a transformed resource into a transforming resource, because it is
being used to transform other information rather than being transformed itself. So, whereas
managing physical material concerns ordering and holding the right amounts of goods or materials
to deal with the variations in flow, and managing queues is about the level of resources to deal with
demand, a database is the accumulation of information but may not cause an interruption to the
flow.
Managing databases is about the organization of the data, its storage, security and the retrieval
(access and search).
Why should there be any inventory?
There are plenty of reasons to avoid accumulating inventory where possible.
So why have inventory?
Inventories provide many advantages for both operations and their customers. The task of
operations management is to allow inventory to accumulate only when its benefits outweigh its
disadvantages. Some of the benefits of inventory:
2
