Buffer inventory is also called safety inventory. Its purpose is to compensate for the unexpected ﬂuctuations in supply and demand. For example, a retail operation can never forecast demand perfectly, even when it has a good idea of the most likely demand level. It will order goods from its suppliers such that there is always a certain amount of most items in stock. This minimum level of inventory is there to cover against the possibility that demand will be greater than expected during the time taken to deliver the goods. This is buffer, or safety inventory. It can also compensate for the uncertainties in the process of the supply of goods into the store, perhaps because of the unreliability of certain suppliers or transport ﬁrms.
Disadvantages of Buffer Stock
Disadvantages include the costs for storage and security of the stockpiles which leads to an opportunity cost as the government cant spend money in other sectors. If supply continues to increase without disruption then it will mean the government has to purchase more surplus stock and store which may become more expensive. Conversely their may be an event which causes a decrease in the supply which would mean the government has to use up its stockpile, if this continues and the government runs out of stock then the market price will eventually exceed the maximum price and so render the buffer stock system inept. The price range may be inaccurately set in the first place which would also cause problems. The stocks may be perishable over a long period of time, which means the government can lose money if it has to destroy stock.
The zero inventory philosophy - Conventional and JIT approaches Just-in-time philosophy gained prominence in the 1970’s through Taiichi Ohno at the Toyota motor company. “The Just-in-Time (JIT) philosophy in the simplest form means getting the right quantity of goods at the right place and at the right time”. (Reid & Sanders, 2007).
Stock exists because items have been bought before they are required. It is normally uncertainty or over caution that causes inventory. The principle of JIT is simply that we have items when they are needed and none when they are not needed. JIT supply is a result of high-quality supply. The idea may be simple but the application of JIT has given the opportunity to decimate stockholding without affecting customers. The better organized and controlled the supply chain, the less inventory is required. It is the logical aim of tight inventory control, effective process planning and plant design, workforce motivation, cost reduction, logistics and even material requirements planning (MRP). The optimization of these together inevitably leads to the JIT approach. The elements of JIT are the techniques to be developed, for example: 1. Supply what is required
2. Supply the quality required
3. Reduce lead times
4. Organize effectiveness
5. Use all the expertise available (i.e. people who do the jobs plus technical backup).
These are the fundamental changes, which lead to JIT – all good inventory management techniques. The most important of these improvements has been in quality, particularly in management processes – quality of records, supply, delivery, forecasting and target setting.
Components of JIT
1. Reduce waste and add value
2. A Broadview of operations
4. Continuous improvement
Holding inventory shows we don’t have control.
Some of the contrasting features of managing conventional stock control and JIT control are shown below:
Contrasts between conventional and JIT inventory control
Conventional Buffer Stock| Just-in-Time|
Satisfied with the status quo| Working towards continuous improvement| Lead time is fixed | Reducing lead time is a continuing challenge| Product range is a sales issue | Product range reduction is an inventory issue| Management...