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(Lecture notes/slide contents of session # 6 dated 28 April, 2008 and onward) Inventory Definition: Inventory is the stock of any item or resource used in an organization. • Inventory may be defined as the stored accumulation of material resources to be used in a transformation process (Fahim??). • An Inventory system is the set of policies and controls that monitors levels of inventory and determines what levels (volumes) should be maintained, when stock should be replenished (restored or regained), and how large the orders should be. • By convention, manufacturing inventory generally refers to items that contribute to or become a part of a firm’s product or output. Inventory Management • Inventory Management is…show more content…
• Pipeline inventory consists of orders that have been placed but not yet received. The Purposes of Inventory (Management) • The primary and basic purpose of inventory management is to seek answers to TWO basic questions: • A) When items should be ordered? • B) How large the order should be? All firms keep a supply of inventory for the following reasons: • To maintain independence of operations • To meet variation in product demand • To allow flexibility in production scheduling • To provide safeguard against variation in raw material delivery time • To take advantage of economic purchase-order size. • To make the best use of money available or to avoid unnecessary cost penalty • To avoid obsolescence The objective of inventory management can be summarized as follows: “Minimize costs while maintaining production output, quality and customer service.” Inventory Costs Holding (or carrying ) costs: This broad category includes the costs for storage ( and space) facilities, handling, insurance, pilferage, damage, obsolescence, depreciation, taxes, and the opportunity cost of capital. Obviously, high holding costs tend to favor low inventory levels and frequent replenishment. Setup (or production change) costs: To make each different product involves obtaining necessary materials, arranging specific

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