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Index

Introduction...............3
Functions of Inventory..3
Types of Inventory...........3
Inventory Management...........4
Record Accuracy.........................4
Cycle Counting............................5
Glosary..........................5
References.............................5
Self-Test............................................6

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Introduction

mand on time, if there is fluctuation in demands of products.

Unreliability of supply: Inventory protects you
from unreliable suppliers or difficulties to get
the products.

All organizations keep inventory to know existing

items within the company. It permits to strike a balance between inventory investment, stockage levels, and
the planning and control system to satisfy customer
service. It includes the companys raw materials; work
in process, supplies used in operations, and finished
goods.

Price protection: Buying quantities of inventory at appropriate times helps to manage the
impact of inflation. It also reduces the cost of
goods or their delivery.

Functions of Inventory

Buffer/safety inventory: Inventory permits to

have products for high demands. It permits to
decouple and separate the different parts of
the production process from suppliers.

Some organizations consider inventory as a waste of

time while other organizations with poor cash flow or
that lack strong control transfer electronic information
to all the departments and all significant suppliers, and
lead times, and quality of materials sent or received.
The functions of inventory are:

Anticipation Stock: With inventory, we can anticipate the upcoming season by keeping items
such as fancy chocolates for Mothers Day or
Valentines Day.
Transitory inventory: We can have inventory
en route from one place to another. It refers to
items moving within the distribution channel
toward you, items outside the facility, or items
en route from your facility to the customer .

Predictability: Recognizing and planning the

production schedule of products. It is necessary to control how much raw material or how
many parts the company is going to require.
Fluctuations in demand: A previous supply
of inventory permits to have products at any
time to satisfy customer or production de-

Different types of stock by Waters, D.

Work in progress

Rawm aterial

Operations in the
process

Consumables

Finished goods

Spare parts

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Organizations establish the functions of inventory according to the items and purposes. These are (1) raw
material inventory, (2) work-in-process inventory, (3)
maintenance/repair/operating supply (MRO) inventory, and (4) finished-goods inventory.

The ABC analysis (Pareto principle) is an inventory

application to state critical few and trivial many. It
permits to establish inventory policies to organize resources according to grades of attention focused on
rates of sale, value per unit, cost of storage, or value of
the item to the customer. It is based on annual dollar
volume .

Raw material inventory: They are products

without any process.
Work-in-process inventory (WIP): They are
components, products or raw materials. They
are currently being processed but the process
is not completed. It takes time to be processed
(Cycle time).
Maintenance/Repair/Operating supply (MRO)
inventory: They are materials kept for machinery or equipment. These parts support
operations, but they do not form a part of the
final product.
Finished-goods inventory: They are products
finished to be shipped to customers .

Inventory Management

Management of items with high rates of sale.

Inventorying these items saves costs and brings
sales benefits from the good application of inventory control techniques.
Management of items with high value per unit.
Inventorying expensive items permits to have a
great value or reduce inventory.
Management of items with costly storage requirements. Inventory of products with special
attention for storage. They require expensive
methods of storage. As an example, we can
mention frozen food.
Management of items with high strategic value
to customers. Inventory exclusive and expensive items are only valuable for the customer.
For example, an automobile is in New York but
someone needs it in Cincinnati .

Operations managers establish systems for managing

Record Accuracy
inventory. They consider: (1) how inventory items can
be classified (called ABC analysis), and (2) how accurate inventory records can be maintained.
Good inventory policies need to be precise by records
in production and inventory systems. Record accuracy
ABC analysis
allows organizations to focus on those items that are
needed and that cannot be supposed to be in the inRates of sale
A
ventory. Only when an organization can accurately deValue per unit
termine what is on hand can it make precise decisions
B
Cost of storage
about ordering, scheduling and shipping. To ensure acC
Value to customer
curacy, incoming and outgoing records have to be good
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and accurate. It is necessary to have a well-organized

stockroom with limited access, good housekeeping,
and proper areas to keep the inventory.

Cycle Counting
After recording accuracy, organizations need to accurately record inventory. They have to continue on auditing. Those audits are called Cycle Counting. It uses
inventory classifications through ABC analysis. Witch
Cycle Counting procedures, items are counted, then
traced and appropriate remedial actions are taken to
ensure the integrity of the inventory system. It can be
done once a quarter or every 6 months.

Glossary
Inventory: A list of the items held in stock.
Item: A distinct product that is kept in stock.
Stock: Consists of all the goods and materials that are
stored by an organization. It is the store of items that is
kept for future use.

http://books.google.com.co/books?id=gVlSsYqpjl4C&
printsec=frontcover&dq=inventory&hl=es&sa=X&ei=
mW66T4HCOoeagwfg4uSrCg&ved=0CE8Q6AEwBA#v
=onepage&q=inventory&f=false

Heizer, J., & Render, B. (2009). Operations strategy in

a global environment. In Pearson Prentice Hall, Operations Management (pp. 25-49). New Jersey: Pearson
Education, Inc.

Langford, J. (1995). Inventory management. In Jim Jones Editor, Logistics Principles and Applications (pp.
367-379). The United States: McGraw- Hill.

Mller, M., (2011). Inventory as both a tangible and an

intangible object. In Essentials of Inventory Management (pp. 1-6). The United States of America. Retrieved
from
http://books.google.com.co/books?id=flItS9398m0C
&printsec=frontcover&dq=inventory&hl=es&sa=X&ei
=mW66T4HCOoeagwfg4uSrCg&ved=0CD8Q6AEwAQ#
v=onepage&q=inventory&f=false

Unit: The standardized size or quantity of an item.

References
Center for Inventory Management. (2012). What is Inventory Management. Retrieved on August 8th 2012,
from http://www.inventorymanagement.com/

Ronnieb. (Photographer). (2005). DSCF3836 (Photo).

Retrieved on August 13th 2012, from http://www.morguefile.com/archive/display/91741

Donal Waters, D., (2003). Stocks and inventories. In

John Wiley & Sons Ltd, Inventory Control and Management (pp. 3-10). England: Library of the Congress.
Retrieved from

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Self-Test

c.

safety inventory.

d.

unreliability of supply .

Before taking the self- test, refer to text about inventory .

4.
Anticipation
stock
to________________________

permits

Check your knowledge of key terms in inventory by

choosing the best definitions for these terms.
a.
1.
Inventory
organization

permits

to

_________in

an

keep items before an upcoming season arrives.

b.
put inventory en route from one place to
another.

a.

invest money

c.

buy products before prices increase.

b.

produce supplies

d.

control the production.

c.

know existing items

d.

control production

5.
Raw materials are related to inventory
because_____________________________
a.

they are natural products without any process.

2.
Inventory is useful for the organization
because_______________

b.

they are products processed.

a.

it wastes time.

c.

they are parts for machinery or company.

b.

it increases cash flow.

d.

they work in progress.

c.

it transfers information to all departments.

d.

it has different functions.

6.
The ABC analysis is an inventory application
to_________________________
a.

keep inventory in an organization.

3.
A supplier disruption, a strike or shortage of imported critical items are possible causes to
apply___________________

b.

establish policies to organize the inventory.

c.

find resources for the organization.

a.

predictability.

d.

reduce cost in the organization.

b.

price protection.

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7.
Work-in-process
inventory
are 9.
Record
accuracy
permits
________________________currently in process of __________________items in the inventory.
transformation.
a.
determine
a.
products or raw materials
b.
sale
b.
prices
c.
buy
c.
cycle time
d.
invent
d.
shipped products

8.
A perishable product is an example of
___________________in inventory management.
a.

costly storage requirements

b.

high strategic value to customers

c.

high rates of sale

d.

high value per unit

to

10.
Cycle counting permits to _____________
inventories after they are counted.
a.

audit

b.

record

c.

register

d.

have

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