Inventory Management

1524 WordsDec 7, 20127 Pages
The Role of Inventory in the Supply Chain.’ $1.6 billion, it is an estimation of manufacturers’ and trade inventories in the United States in august 2012 (according to the US Department of Commerce). Inventory represents a significant part of company budgets. They are costly and can be risky, but the company spend a lot of money in inventories because they also provide some security for businesses. But what is exactly the role of inventory? Why it is required and what is its purpose? This essay explains in a first part what supply chain is. Then in a second part, it defines the term of inventory and this purpose. Finally the last part considers the key role of inventory in the supply chain and how is controlled.…show more content…
Indeed, to have a product ready and available when customers want it allows coming up efficiently to their expectations. It is very important for a company to limit long waiting times for the customer and inventory influences the time and cost of service. So, inventory allows to satisfy and to respond efficiently to customer demand. Then, inventory allows minimizing costs, it is speculative stock. For instance by exploiting economies of scale that may exist during both production and distribution. Or, when the supplier provides significant discounts for bulk purchases, storage can be useful too. Delivery costs will be reduced if lot sizes are large. Inventory has too a regulatory function; it allows managing and limiting irregularities in supply or production. Therefore it reduces the risk of breakdowns and helps maintain an ongoing activity. Besides, inventory allows protecting the company from price increases of materials or products purchased or sold. Finally, we can mention the pipeline inventory. This last kind of inventory allows to the company to face with transportation delays in the supply chain network. We can conclude that inventory provides some security in a complicated and uncertain environment. Although inventory plays a major role in the supply chain, there are also some inconveniences. Inventory is very costly and uses space that could be used in a more profitable way.
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