Inventory in manufacturing or production unit has both advantages and disadvantages for different departments. While Inventory has been shown as a burden on OPEX due to maintenance cost by some, some attribute virtues to Inventory as it offers better customer service by variety of choices, availability and low handling cost etc. While the excess or shortage of Inventory has definitely negative impact on business, a proper management of it can help in operational efficiency and better customer service
59.Managing Inventory – Part 1
Inventory is an idle resource which has some economic value. It could be waiting for future transformation or sale. It is considered as current asset in balance sheet. Out of typical manufacturing wastes, Inventory is one of the important ones. Inventory can cover all inefficiencies in the system and is one of the key areas to improve operational efficiency. One of the focuses of lean management is to reduce the inventory for operational issues to get exposed. The focus of this article is to look at pros and cons of having inventory, challenges of inventory management, conflicts to be managed and various ways to control inventory.
What is Inventory Management?
Inventory is a necessary evil. Ideally zero inventory is the best. But this will lead to increase of lead time which in turn will affect the customer service. So, some inventory is required. Question is how much? Inventory Management is about managing the level by considering cost of holding the inventory and customer service. It is a trade-off and both these requirements should be balanced.
Conflicting views on Inventory
There are conflicting views on the need of Inventory. One argues on why is it required where others take a stand on why is it not required.
Let us look at both the arguments.
Why Inventory is required?
A, It will improve customer service. Customer can be responded with a very short notice and Customer has the choice when many varieties are kept as Inventory
B, Ordering costs can be reduced in purchase as frequent buying will increase the administrative cost. Buying in bulk will reduce this
C, Business loss because of stock-out situation can be avoided
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