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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
All organizations keep inventory to know existing
items within the company. It permits to strike a balan-
ce 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.
Functions of Inventory
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:
Predictability: Recognizing and planning the
production schedule of products. It is neces-
sary 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-
Work in progress
Operations in the
Rawm aterial
process
Consumables
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mand on time, if there is fluctuation in de-
mands of products.
Unreliability of supply: Inventory protects you
from unreliable suppliers or difficulties to get
the products.
Price protection: Buying quantities of inven-
tory at appropriate times helps to manage the
impact of inflation. It also reduces the cost of
goods or their delivery.
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.
Anticipation Stock: With inventory, we can an-
ticipate 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 .
Different types of stock by Waters, D.
Finished goods
Spare parts
Organizations establish the functions of inventory ac-
cording to the items and purposes. These are (1) raw
material inventory, (2) work-in-process inventory, (3)
maintenance/repair/operating supply (MRO) inven-
tory, and (4) finished-goods inventory.
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 ma-
chinery 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
Operations managers establish systems for managing
inventory. They consider: (1) how inventory items can
be classified (called ABC analysis), and (2) how accura-
te inventory records can be maintained.
ABC analysis
Rates of sale
A ventory. Only when an organization can accurately de-
Value per unit
B Cost of storage
C Value to customer curacy, incoming and outgoing records have to be good
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The ABC analysis (Pareto principle) is an inventory
application to state critical few and trivial many. It
permits to establish inventory policies to organize re-
sources 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 .
Management of items with high rates of sale.
Inventorying these items saves costs and brings
sales benefits from the good application of in-
ventory 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 re-
quirements. 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 expen-
sive items are only valuable for the customer.
For example, an automobile is in New York but
someone needs it in Cincinnati .
Record Accuracy
Good inventory policies need to be precise by records
in production and inventory systems. Record accuracy
allows organizations to focus on those items that are
needed and that cannot be supposed to be in the in-
termine what is on hand can it make precise decisions
about ordering, scheduling and shipping. To ensure ac-
and accurate. It is necessary to have a well-organized http://books.google.com.co/books?id=gVlSsYqpjl4C&
stockroom with limited access, good housekeeping, printsec=frontcover&dq=inventory&hl=es&sa=X&ei=
and proper areas to keep the inventory. mW66T4HCOoeagwfg4uSrCg&ved=0CE8Q6AEwBA#v
=onepage&q=inventory&f=false

Cycle Counting
Heizer, J., & Render, B. (2009). Operations strategy in
a global environment. In Pearson Prentice Hall, Ope-
After recording accuracy, organizations need to accu- rations Management (pp. 25-49). New Jersey: Pearson
rately record inventory. They have to continue on au- Education, Inc.
diting. Those audits are called Cycle Counting. It uses
inventory classifications through ABC analysis. Witch
Cycle Counting procedures, items are counted, then
Langford, J. (1995). Inventory management. In Jim Jo-
traced and appropriate remedial actions are taken to
nes Editor, Logistics Principles and Applications (pp.
ensure the integrity of the inventory system. It can be
367-379). The United States: McGraw- Hill.
done once a quarter or every 6 months.

Glossary
Mller, M., (2011). Inventory as both a tangible and an
intangible object. In Essentials of Inventory Manage-
Inventory: A list of the items held in stock. ment (pp. 1-6). The United States of America. Retrieved
from
Item: A distinct product that is kept in stock.
http://books.google.com.co/books?id=flItS9398m0C
Stock: Consists of all the goods and materials that are
&printsec=frontcover&dq=inventory&hl=es&sa=X&ei
stored by an organization. It is the store of items that is
=mW66T4HCOoeagwfg4uSrCg&ved=0CD8Q6AEwAQ#
kept for future use.
v=onepage&q=inventory&f=false
Unit: The standardized size or quantity of an item.

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

Retrieved on August 13th 2012, from http://www.mor-
Center for Inventory Management. (2012). What is In- guefile.com/archive/display/91741
ventory Management. Retrieved on August 8th 2012,
from http://www.inventorymanagement.com/

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

John Wiley & Sons Ltd, Inventory Control and Mana-
gement (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 inven-
tory .
4. Anticipation stock permits
to________________________
Check your knowledge of key terms in inventory by
choosing the best definitions for these terms.
a. keep items before an upcoming season arrives.

1. Inventory permits to _________in an b. put inventory en route from one place to

organization 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 shorta-
ge of imported critical items are possible causes to b. establish policies to organize the inventory.
apply___________________ 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 to
________________________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

10. Cycle counting permits to _____________

8. A perishable product is an example of inventories after they are counted.
___________________in inventory management.
a. audit
a. costly storage requirements
b. record
b. high strategic value to customers
c. register
c. high rates of sale
d. have
d. high value per unit

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