Supply Chain

Inventories are present whenever the inputs and outputs of a company are not used as soon as they become available. In general, most people think of inventory as a final product waiting to be sold to a retail customer. e.g. a new car, a can of ananas at a grocery store. This is of course one of its most important uses. Inventory can take on a number of different forms besides finished goods, such as raw materials, supplies, parts etc. Inventory can be viewed as a necessary evil. Although it costs money to hold, inventory helps with the customer service and resource utilisation and reduces ordering, set up, transportation and purchased material costs. One of the major functions of materials management is to uncouple activities, providing some degree of independence at various points in materials flow system. In other words, the inventory's primary purpose is to see that the right amounts of input materials are available for the production process when they are needed. In order to do this, a firm must ordinarily stock, or inventory, the input materials. The question is:" How much inventory should be held?" If there is too little, the production process may stop, because of lack of raw materials. On the other hand, management doesn't want to carry too many inventories; surplus inventories are often termed the "graveyard" of business and thought to be one of the principal causes of business failure. The importance of avoiding surplus inventories is partially due to the increasing risk of obsolescence. Unnecessarily large inventories can introduce inflexibility and rigidity into a firm's operations; the unavailability of these funds may necessitate missed investment opportunities and possibly serious losses.