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Dilfraz Singh, Lovely Professional University Unit 9: Inventory Planning and Control

Unit 9: Inventory Planning and Control Notes

CONTENTS
Objectives
Introduction
9.1 Functions of Inventory
9.2 Inventory Costs

9.2.1 Holding (or Carrying) Costs
9.2.2 Cost of Ordering
9.2.3 Set up (or Production Change) Costs
9.2.4 Shortage or Stock-out Costs

9.3 Inventory Control by Classification Systems

9.4 Inventory Control
9.5 Inventory Control Systems
9.6 Summary
9.7 Keywords

9.8 Self Assessment
9.9 Review Questions
9.10 Further Readings

Objectives

After studying this unit, you will be able to:
Understand inventory planning and inventory control

Know about various functions and types of inventory
Distinguish inventory costs, safety stock, order point and service level
Learn about inventory control systems

Introduction

The term ‘inventory’ means any stock of direct or indirect material (raw materials or finished

items or both) stocked in order to meet the expected and unexpected demand in the future. A

basic purpose of supply chain management is to control inventory by managing the flows of
materials. It sets policies and controls to monitor levels of inventory and determine what levels
should be maintained, when stock should be replenished, and how large orders should be.
Inventory is a stock of materials used to satisfy customer demand or support the production
of goods or services. By convention, inventory generally refers to items that contribute to or
become part of an enterprise’s output. There are different types of inventory; however, the most

commonly identified types of inventory are:
1. Raw Materials Inventory: Parts and raw materials obtained from suppliers that are used
in the production process.

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