Inventory Management – Determining and Maintaining the Optimal Inventory Size Essay Example

; an Inventory may better the bargaining power of house with a provider ( or with its ain employees ) by doing the company less dependant on them. Inventories are besides kept so that machine can be shut down for overhear.

THE STRUCTURE OF THE INVENTORY SYSTEM

The Inventory system involves a rhythm procedure. which is assumed to run over several periods. whose major features are:

Inventory degree: an point is stocked in a warehouse. shop or any other storage country. This stock continues an Inventory. The size of the Inventory is called the Inventory degree ( or Inventory on Hand ) .

Depletion: the Inventory is depleted as demand occurs. Assume that one starts with an Inventory of 100 units. As clip passes the Inventory is reduced. The rate of demand can be changeless ( e. g three units every twenty-four hours ) . A changeless demand reduces the Inventory leveling equal stairss.

Recording: to reconstruct an stock list. the point is replenished sporadically. When the stock list degree is reduced to a certain degree called the record point. a replacing order is placed. The clip between reordering and receiving is called lead-time.

Replacement. deficits and excesss: in most basic stock list theoretical accounts. it is assumed that the reorder is scheduled so that the replacing will get precisely when the stock list degree reaches zero. Such an premise holds if the demand is changeless. However if the demand fluctuates and the lead- clip varies. the cargo may get either before or after stock is wholly depleted. that is the depletion and replacing and replacing does non co-occur. In such a instance a excess or deficit will happen.

If the cargo arrives after depletion. so the demand can non be met and deficit will happen. When the cargo arrive anterior depletion. an stock list degree larger than zero or excess exists.

Safety stock: deficit can be eliminated or reduced by intentionally constructing up a safety stock. It is excess stock list held against the possibility of stock out.  The mean stock list: the balance of stock list on manus in instance of changeless demand. it is about half the maximal stock list.