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Importance of Inventory Management

The document outlines the importance of inventory management, highlighting its role in ensuring product availability, customer selection, and managing uncertainties in supply and demand. It also discusses concepts such as Little's Law, economies of scale, and the benefits of holding inventory to exploit price fluctuations and smooth production. Overall, effective inventory management is crucial for operational efficiency and customer satisfaction.

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Gaurav
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7 views1 page

Importance of Inventory Management

The document outlines the importance of inventory management, highlighting its role in ensuring product availability, customer selection, and managing uncertainties in supply and demand. It also discusses concepts such as Little's Law, economies of scale, and the benefits of holding inventory to exploit price fluctuations and smooth production. Overall, effective inventory management is crucial for operational efficiency and customer satisfaction.

Uploaded by

Gaurav
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Inventory Management

Why Do We Need Inventory?


➢ Availability to sell
➢ Customer selection to view
➢ Minimum order quantities
➢ Time in transit
➢ Work In Progress:
Little’s Law
▪ Minimum batch sizes L=λ W
L = Level of WIP
▪ Production throughput times
λ = Throughput Rate
▪ Little’s Law W = Throughput Time

Why Else Do We Hold Inventory?

➢ Protects against uncertainty


▪ Raw Materials: supply & demand uncertainty
▪ Finished Goods: demand uncertainty, long replenishment lead times
▪ Work-in-Process: process uncertainty (quality machine breakdown, etc.)

Uncertainty

➢ Exploitation of price fluctuations


▪ Raw materials: Cocoa, Coffee, etc...

Exploitation of Price

➢ Economies of scale (EOS)


▪ Larger batches can be used to minimise setup / changeover costs.

Economies of Scale
➢ Smoothing or levelling of production
▪ Small variation in demand can be buffered through making and using
FGI stock.

Smoothing or levelling production

Course Handout

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