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Inventory management is a system used to oversee the flow of products and services in and out of an organization. A company may decide to incorporate one key inventory management technique or combine a variety of techniques to meet organizational needs. Businesses utilize inventory management strategies to create invoices and purchase orders, generate receipts and control inventory-related accounting.

Managing inventory successfully is not about technical solutions; rather a key factor to bear in mind with inventory management is that much of it is service related it has to do with managing relationships throughout the supply network and this is fully linked to service operations.

Ways to Manage Inventor y

An effective way to manage inventory is to solicit the help of suppliers. Suppliermanaged inventory gives the vendor access to the distributor's inventory data. The supplier generates purchase orders based on the distributor's needs. Distributionintensive companies utilize vendor managed inventory controls to eliminate data-entry errors and to effectively manage the timing of purchase orders.


An efficient method for managing inventory is to hire a dedicated inventory control specialist. Inventory specialists manage all merchandise items that are on hand and in transit. They also perform adjustments, manage returns, validate received merchandise and implement inventory reporting strategies.

LEAD TIME Lead time is the amount of time it takes to reorder inventory. Suppliers deliver products at varying times after an order is placed. A useful way to manage inventory is to establish lead time reports to understand how long it takes to replenish your inventory.


Having high levels of inventory adds to expenses and increases overhead costs. An effective way to manage inventory is to determine the inventory demands of the business. Limit seasonal inventory and cut back on inventory that does not sell.

An effective way to manage inventory is to measure inventory turnover and delivery turnaround time. This involves measuring how often your inventory sells and how long it takes to get into the hands of your customers.

Many organizations hire inventory consultants outside the company to develop and manage internal inventory systems. Inventory consultants are responsible for maintaining accuracy, cycle counting, shipping and receiving, and managing order-picking operations.

Many businesses manage inventory by designing an inventory management database or purchasing inventory management software. Inventory management software enables distributors to customize the database to fit their individual needs.

All businesses have products that sell and products that sit on the shelves. A helpful way to manage inventory is to establish a system that pinpoints which products move quickly and which products take more time to sell.

Many businesses develop a tracking system to manage inventory and monitor turnaround times. Inventory tracking system formats range from spreadsheets to computer programs. They provide complete inventory control allowing business owners to organize item levels and take cycle counts in distribution centers or stock rooms.

Businesses successfully manage inventory by tracking units as they move through different operational stages. Many businesses utilize some inventory to create other products. Establishing a system to track "work-in-progress" materials allows businesses to adjust order amounts before the inventory gets too low and slows production.

Questions within the supply chain (Brown, 2000)

PROBLEMS WITH HOLDING INVENTORIES storage costs; interest is tied up therefore, a loss on capital; obsolete stock; less money is available for the business; prices fall on held items; deterioration, theft, damage.

PROBLEMS WITH INVENTORY STOCKOUTS failure to satisfy customer demands; costly emergency procedures to rectify situations; higher replenishment costs for stock replacement.

Just-inTime and MRP

JIT and MRP are completely unlike, but are complementary concepts used in material planning and control. MRP stands for Manufacturing Resource Planning, while JIT is Just in Time. MRP is a resource and planning tool that is forward-thinking, and timephased. The philosophy of JIT, on the other hand, is based on the riddance of waste. While operating a manufacturing business, it is possible to operate only with MRP, but the case isnt the same with JIT, because it does allow for forward planning, which is a vital planning requirement whenrunninga manufacturing operation. This makes MRP a tool that gives more control, while JIT increases the value of your processes.

Just in time (JIT) is a production strategy that strives to improve a business return on investment by reducing in-process inventory and associated carrying costs. Justin-time production method is also called the Toyota Production System. Just In Time (JIT) is a production and inventory control system in which materials are purchased and units are produced only as needed to meet actual customer demand. When companies use Just in Time (JIT) manufacturing and inventory control system, they purchase materials and produce units only as needed to meet actual customers demand. In just in time manufacturing system inventories are reduced to the minimum and in some cases are zero. JIT approach can be used in both manufacturing and merchandising companies.

Reduced setup time. Cutting setup time allows the company to reduce or eliminate inventory for "changeover" time. The tool used here is SMED (single-minute exchange of dies). The flow of goods from warehouse to shelves improves. Small or individual piece lot sizes reduce lot delay inventories, which simplifies inventory flow and its management. Employees with multiple skills are used more efficiently. Having employees trained to work on different parts of the process allows companies to move workers where they are needed.


Production scheduling and work hour consistency synchronized with demand. If there is no demand for a product at the time, it is not made. This saves the company money, either by not having to pay workers overtime or by having them focus on other work or participate in training. Increased emphasis on supplier relationships. A company without inventory does not want a supply system problem that creates a part shortage. This makes supplier relationships extremely important.


Supplies come in at regular intervals throughout the production day. Supply is synchronized with production demand and the optimal amount of inventory is on hand at any time. When parts move directly from the truck to the point of assembly, the need for storage facilities is reduced. Minimizes storage space needed. Smaller chance of inventory breaking/expiring.


If a manager has a satisfactory MRP or MRPII system in place, he should look to JIT to simplify his processes as the first stage of implementation. Once he has simplified his processes, it is much easier to implement a new planning system although it is possible that the current planning system may now be sufficient. If his current MRPII processes are poor, he should follow the fullERP/MRP implementation planalthough some simplification should be carried out if possible. In summary, MRP gets you in control whilst JIT helps you to improve your processes.