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Inventory Management

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Any goods that are purchased or manufactured for customer consumption are called inventory. Inventory is just a fancy name for stock. You get different types of stock or inventory, however:

  • Raw materials. For example, rubber may be purchased for the production of tyres.
  • Work in process. This is stock that is still being processed or produced, for example, a car that is not quite finished on Saturday, but which will be completed on Monday morning.
  • Finished goods. These are goods (services) which are complete and ready for customer consumption, for example, a nicely polished car in a motor vehicle showroom.

Inventory management involves inventory control and inventory calculations. Certain companies will see the value of their inventory as being made up as follows:

the value of the raw materials + the value of work-in-process items + the value of goods in transit (cars on the transportation truck) + the value of finished goods = total inventory value.

Inventory managers use a number of techniques to reduce the stock that they have to hold. These include:

  1.     Forecasting methods

A shop owner, for example, will not want to keep more stock in his shop than is necessary, since keeping stock costs money. Instead of the stock sitting idle on his shelves, he could rather invest the money in the bank and earn interest.

  1.     Re-ordering methods

Fancy new computer systems will electronically re-order the items which you regularly need to keep in stock for your business. You can preset the minimum stock level on an item, and when stock levels reach this minimum level, the computer will automatically re-order for you.

  1.     Planning methods.

Many planning and scheduling methods are also available to logisticians. You can use Just-in-Time inventoryOpens in new window techniques, which enable you to get supplies just as you need them. This reduces waste and redundant stock, but also requires solid management and planning, and good liaison with suppliers (they need to know exactly when you need the supplies). A certain amount of consistency, predictability and adaptability is needed to make this method work effectively.

See also:
  1. J.C. Johnson, D.F. Wood, D.L. Wardlow, P.R. Murphy, Contemporary Logistics, seventh ed., Prentice Hall, Upper Saddle River, NJ, 1999, pp. 1 – 21.
  2. A. Rushton, P. Crouche, P. Baker, The Handbook of Logistics and Distribution Management, third ed., Kogan Page, London, 2006.
  3. S.C. Ailawadi, R. Singh, Logistics Management, Prentice Hall of India, New Delhi, 2005.
  4. R.H. Ballou, Business Logistics/Supply Chain Management: Planning, Organizing, and Controlling the Supply Chain, fifth ed., Pearson-Prentice Hall, Upper Saddle River, NJ, 2004.
  5. J.R. Stock, D.M. Lambert, Strategic Logistics Management, fourth ed., Irwin McGraw-Hill, New York, 2001.
  6. G. Ghiani, G. Laporte, R. Musmanno, Introduction to Logistics Systems Planning and Control, John Wiley & Sons, NJ, 2004, pp. 6 – 20.
  7. M. Hugos, Essentials of Supply Chain Management, John Wiley & Sons, Hoboken NJ, 2003, pp. 1 – 15.
  8. H.T. Lewis, J.W. Culliton, J.D. Steel, The Role of Air Freight in Physical Distribution, Division of Research, Graduate School of Business Administration, Harvard University, Boston, MA, 1956, p. 82.
  9. D. Riopel, A. Langevin, J.F. Campbell, The network of logistics decisions, in: A. Langevin, D. Riopel (Eds.), Logistics Systems: Design and Optimization, Springer, New York, 2005, pp. 12–17.
  10. M. Browne, J. Allen, Logistics of food transport, in: R. Heap, M. Kierstan, G. Ford (Eds.) Food Transportation, Blackie Academic & Professional, London, 1998, pp. 22–25.
  11. J. Drury, Towards More Efficient Order Picking, IMM Monograph No. 1, The Institute of Materials Management, Cranfield, 1988.
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