In manufacturing, inventory includes raw materials, work in process, and finished goods. Running out of a necessary component during production can be very costly for a manufacturer. The goal of inventory management is to balance the cost of ordering and storing material with the cost of not having it available when needed. Effective inventory management combines elements of accounting, sales, and operations management. Certain aspects of this unit will feel like a review of accounting, but we will be discussing accounting from the perspective of the operation manager. There are many strategies for managing inventory. Because direct costs can be calculated based on the time an inventory is in storage, accountants and operations managers try to prevent inventory from "sitting around".
An example of one of the most successful implementers of inventory management is Walmart. Walmart uses vendor-managed inventory, meaning that its merchandise does not sit in a Walmart warehouse. Instead, it stays with the manufacturer until Walmart learns from its stores that more is needed. This keeps Walmart from having to pay to store all of the products it sells. In this unit, we will consider how demand influences the operations manager's choice of an inventory management system. We will also examine models for determining how much inventory to order and when.
Completing this unit should take you approximately 3 hours.
Read this section to look at inventory management's role in the marketing and manufacturing processes. Explore the connections between inventory control and demand planning. Be sure to view each video clip within the reading. Tackle the review questions at the end of the chapter to see how well you can apply these concepts.
Read this chapter on Inventory Management. Be sure to reference the useful glossary terms at the bottom of each section. The language of inventory management can sometimes be confusing. This reading helps you to better understand how to reference inventory principles and use language appropriately.
Read this section, paying close attention to the inventory flow diagram. This diagram is important because it describes how different information from different areas is crucial to developing a sound operations plan. Planning is a primary element of management. As an operations manager, information from other functional areas must be incorporated into the operations plan.
This section will help you understand how companies keep and manage inventory. There are basic reasons for keeping inventory on hand. The important part is that these reasons are evaluated for the needs of each organization, and an inventory management system is created that allows for the highest level of efficiency possible.
Read this paper on EOQ modeling, which is fairly technical but should help you understand the fundamental function of this equation. EOQ is important because it helps minimize the total holding and ordering costs related to inventory. Pay close attention to when this applies in the production process.
Read this summary. Pay close attention to the types of inventory control and the EOQ model. This source is useful because of the detailed information related to inventory function, reasons for inventory management, and types of inventory control.
In this activity, you will continue working on your operations management plan. This final part of your operations management plan requires that you identify the critical factors involved in inventory control systems. After developing this final portion of your plan, compile all the parts you have worked on to create a comprehensive business plan.
Take this assessment to see how well you understood this unit.