Operation Research

In: Business and Management

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Inventory Management


Inventory Management


Operations Management


William J. Stevenson

Inventory Management

8th edition
McGraw-Hill/Irwin Operations Management, Eighth Edition, by William J. Stevenson Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.


Inventory Management


Inventory Management

Types of Inventories

Inventory: a stock or store of goods

Independent Demand


Dependent Demand

Raw materials & purchased parts • Partially completed goods called work in progress
• •

Finished-goods inventories







(manufacturing firms) or merchandise (retail stores)

Independent demand is uncertain. Dependent demand is certain.


Inventory Management

Types of Inventories (Cont’d) (Cont’


Inventory Management

Functions of Inventory

• •

Replacement parts, tools, & supplies Goods-in-transit to warehouses or customers

• • • •

To meet anticipated demand To smooth production requirements To decouple operations To protect against stock-outs


Inventory Management

Functions of Inventory (Cont’d) (Cont’
To take advantage of order cycles To help hedge against price increases To permit operations To take advantage of quantity discounts


Inventory Management

Objective of Inventory Control

• • • •

To achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds
• •

Level of customer service Costs of ordering and carrying inventory


Inventory Management

Effective Inventory Management
• • • •

11-10 Inventory Management

Inventory Counting Systems

A system to keep track of inventory A reliable forecast of demand Knowledge of lead times Reasonable estimates of
• • •

Periodic System…...

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