inventory concept

Rutgers

Department of SCMS

Xiaowei Xu

Inventory Concepts

1

Rutgers

Department of SCMS

Xiaowei Xu

Definition of Inventory
• Inventory is the stock of any item or resource used in an organization and can include: raw materials, finished products,

component parts, supplies, and work-in-process
• An inventory system is the set of policies and controls that

monitor levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large

orders should be

2

Rutgers

Department of SCMS

Xiaowei Xu

Purposes of Inventory
1. To maintain independence of operations
2. To allow flexibility in production scheduling
3. To meet variation in product demand
4. To provide a safeguard for variation in raw material delivery time 5. To take advantage of economic purchase-order size
6. To hedge price fluctuation
3

Rutgers

Department of SCMS

Xiaowei Xu

Types of Inventory
 Raw material
 Purchased but not processed
 Work-in-process
 Undergone some change but not completed
 A function of cycle time for a product
 Maintenance/repair/operating (MRO)
 Necessary to keep machinery and processes productive  Finished goods
 Completed product awaiting shipment
4

Rutgers

Department of SCMS

Xiaowei Xu

Inventory Form and Function
• Defining inventory by cause is a simple but extremely powerful mechanism to promote supply chain improvements.

Sean Willems, Inventory optimization: Evolving from fad to necessity. Supply Chain Management Review 2013.
5

Rutgers

Department of SCMS

Xiaowei Xu

• Anticipatory stock is inventory held to satisfy an exceptional demand that is itself a binary event.
• Cycle stock is the inventory that exists due to review frequencies, or batching policies, in the supply chain.
• Early arrival stock is the inventory that has arrived earlier than projected. • Marketing stock is inventory placed on store shelves