Inventory Decision Making

Inventory Decision Making

1. Fundamentals

   • Historically, managing inventory involved two fundamental questions: how much to reorder from vendors and/or their plants and when to reorder. By performing a few simple calculations, an inventory manager could easily determine acceptable solutions to these issues. Today, questions regarding where inventory should be held and what specific line items should be available at specific locations challenge the creativity and analytical capabilities of inventory decision makers

2. Demand

   • Dependant
     • When it is directly related to the demand of other inventory item or product
   • Independant
     • Demand for a given inventory item. when such demand is unrelated to the demand for other items
   • Pull vs Push
     • Pull
       • They can respond quickly to sudden or abrupt changes in demand
     • Push
       • Inventory replenishment to anticipate future demand
   • Systemwide vs single
     • The principal factors associated with the systemwide approach are the time and expense of developing a truly comprehensive solution to a network's inventory problems, and also the question of whether or not it will work, once developed and implemented. The single-facility approach is less expensive and more straightforward in development terms. Its inherent risk is that it may produce optimal single-facility results that may be suboptimal from a systemwide perspective.

3. Fiixed Order Quantity

   • Inventory Cycle
     • A method of keeping track of inventory by performing inventory counts constantly, or on a frequent and regular basis, instead of once per year or once per quarter. A business using the cycle inventory method might count different items at different rates, based on the level of turnover or demand for that particular item. Read more: http://www.businessdictionary.com/definition/cycle-inventory.html
   • Economic Order Quantity
   • ReOrder Point
     • Inventory level of an item which signals the need for placement of a replenishment order, taking into account the consumption of the item during order lead time and the quantity required for the safety stock. Also called reorder level, reorder quantity, or replenishment order quantity. Read more: http://www.businessdictionary.com/definition/reorder-point.html

4. Uncertainty of demand

   • Demand uncertainty means your business has difficulty accurately projecting customer demand in the future. This poses a significant challenge because it makes inventory hard to control and manage. Using technology to monitor sales over time can help offset demand that fluctuates from one period to the next.

5. Just in Time

   • strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. This method requires producers to forecast demand accurately.

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