Mai Amin Fahmey MBA-English (C2)
Assignment (4)
4. Inventory Management / Inventory Planning and Control
4.1 Concept of Inventory:
Inventory refers to all the goods, materials, and products that a company holds at
any given time for the purpose of resale, production, or use in operations. In
simpler terms, inventory is anything a business owns that has a monetary value and
can be converted into cash or used in the production process. It includes raw
materials, components, and finished products, as well as the warehousing and
processing of these items.
4.2 Typology (Main Types) of Inventory:
▪ Raw Materials
• These are the basic inputs needed to create products.
• Example: Lumber, steel, cotton — items that haven’t yet been used in
production.
▪ Work-In-Process (WIP)
• Inventory that is currently being manufactured — partly completed goods.
• Includes raw materials that have entered production but are not yet finished.
• Example: A car on the assembly line or a dress being sewn.
▪ Finished Goods
• Products that are fully made and ready to be sold or used.
• Example: Packaged t-shirts, artisan candles, or medical supplies ready for
use.
• Note: What counts as “finished” depends on the business — something
that’s raw for one company could be a finished good for another.
▪ MRO Inventory (Maintenance, Repair & Operations)
• These are supplies that support operations but don’t become part of the final
product.
• Includes items like lubricants, safety gear, spare parts, cleaning supplies, or
office supplies
• They help maintain equipment, prevent downtime, and support daily
business activities.
4.3 Objectives of Keeping Inventory:
1. Ensure materials are always available so production doesn’t stop.
2. Improve customer service by delivering orders correctly and on time.
3. Reduce waste and losses through better tracking and control.
4. Maintain enough stock to meet demand without shortages.
5. Lower storage costs by avoiding overstocking.
6. Reduce total inventory costs through better purchasing and planning.
7. Improve sales by understanding which products move fast or slow.
4.4 Meaning of Inventory Management:
Inventory management refers to the process of ordering, storing, using, and selling
a company's inventory There are different methods of inventory management, each
with its pros and cons, depending on a company's needs.
Inventory Management Approaches:
1. Just-in-Time (JIT):
A system where companies keep only the inventory they need right now. It reduces storage costs
and waste but is risky if suppliers delay or demand increases suddenly.
2. Materials Requirement Planning (MRP):
A planning method that uses sales forecasts to know what materials to order and when. It
depends heavily on accurate predictions of customer demand.
3. Economic Order Quantity (EOQ):
A formula that calculates the best order size to reduce total inventory costs. It balances holding
costs with ordering/setup costs and works best with steady demand.
4. Days Sales of Inventory (DSI):
A ratio that shows how many days a company takes to sell its inventory. Lower DSI means faster
sales and better inventory efficiency.
4.5 Problems or Obstacles to Effective Inventory Management:
1. Keeping track of inventory inconsistently.
2. Warehouse work is slow or inefficient.
3. Inventory data is wrong or outdated.
4. Customer demand keeps changing.
5. Hard to find items in the warehouse.
6. Too much paperwork and manual processes.
7. Fragile, perishable, or expensive items are hard to manage.
8. Supply chains are complicated and unpredictable.
9. Not enough space in the warehouse.
10. Running out of stock or overselling products.
11. Competing for materials with other businesses.
12. Changes in packaging create storage problems.
13. Expanding product range is hard to manage.
14. Having too much stock wastes money and space.
15. Inventory can get lost, damaged, or stolen.
16. Poor planning slows production.
17. Not enough skilled staff to manage inventory.
18. Departments don’t share information properly.
19. Manual processes are slow and hard to scale.
20. Old or unsuitable software makes management harder.
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