When holding stock it could be because of ordering costs, variability in demand, variability in supply, economies of production and stock outs. The could be from the problems with the lead time, saving admin costs, prevention of loss of sales and preventing stock outs or changes in demand. Inventory strategy can be placed were stock outs can be reduced, reduce lead time and increase product output.
The trade-off between stock leads to loss of sales. It becomes waste of promotion and marketing costs. It leads to potential delays and stoppages within the manufacturing process. Inventory is managed by the use of either using pull or push system. Pull system is were product completion is delayed until customer order with the use of just in time. E.g. putting dye on a sweater to meet the customer requirements of having a particular colour. Whereas the push system produces according to the forecast and previous sales, therefore pushing inventory into the market.
When dealing with inventory there are dependent
and independent demand systems. Dependant demand systems are MRP, MRP II, JIT, and JIT II. Independent demand systems are order quantities, replenishment systems, peatro analysis and forecasting. Dependant demand systems comply with the pull system whereas the independent demand system complies with the push system.
Fixed re-order level and fixed time re- ordering is needed to taken into consideration when dealing with inventory. Fixed re-order involves deciding the minimum level of order being...