Inventory Management

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Inventory Management
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Purpose of Inventory Management

• Have inventory when you need it
• Dont have too much.

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Carrying Cost of Inventory

• Opportunity cost of money invested
• Cost of handling materialpacking, moving
• Rent and utilities for warehouse
• Insurance and taxes
• Physical inventory and cycle counting
• Inventory shrinkage and obsolescence

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The Job of Purchasing

• Proper Quantity
• Proper Form and Quality
• Proper Place and Time
• Proper Cost

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INVENTORY MANAGEMENT TOOLS

• Economic Order Quantity (EOQ)
• Re-Order Point (ROP)
• Reliability of Inventory Methods
• Quality Control

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Economic Order Quantity (EOQ)

• How much inventory is going to be needed and when
• Safety factor (delayed shipments, etc.)
• Price breaks--first break is usually the best.

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Re-Order Point (ROP)

• Based on lead time and usage.
• Example If you use 400 widgets a month and it
  takes two months for a shipment to arrive, your
  re-order point is when you have 800 widgets left
  in inventory.

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Inventory Methods

• Physical Inventory
• Can be full inventory or just most expensive
  items.
• Computer inventory
• Typically maintained with periodic physical check.

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Quality Control

• Feed forward control
• Provide suppliers with exact specifications
• Concurrent control
• Monitor processes
• Feedback control
• Review specifications after completion