Page 168 - DMGT523_LOGISTICS_AND_SUPPLY_CHAIN_MANAGEMENT

Unit 7: Inventory Management

 A 2002 West Coast port strike shut down ports from Seattle to San Diego. Economists Notes
estimate that this strike cost the economy up to $1 billion a day, as stores could not be
stocked, fruits and vegetables rotted, and factories were shut down due to lack of parts.
 In September 1999, a massive earthquake devastated Taiwan. Initially, 80 percent of the
island’s power was lost. Companies such as Hewlett-Packard and Dell, who source a
variety of components from Taiwanese manufacturers, were impacted by supply
interruptions.

 Fabric shipments from India were delayed in the wake of the January 26, 2001, earthquake
in the Indian state of Gujarat, impacting many U.S. apparel manufacturers.
Although uncertainty and risk cannot be eliminated, we will explore a variety of examples that
illustrate how product design, network modelling, information technology, procurement, and
inventory strategies are used to minimize uncertainty, and to build flexibility and redundancy
in the supply chain in order to reduce risks.

Task Illustrate how fine-line inventory classification can be used with product and
market segments. What are the benefits and considerations when classifying inventory by
product, market, and product/market?

Self Assessment

State whether the following statements are true or false:
10. Matching supply and demand is a major challenge.

11. Demand is only a source of certainty.
12. Forecasting solve the problem.

7.5 Inventory Management Policies

Business owners and managers focus on this activity because inventory typically represents the
second largest expenditure in a company behind payroll. Policies and procedures help companies
actively manage the different products in their facilities. While standard policies and procedures
exist for inventory management, owners and managers have some latitude to develop standards
for their own companies.
Inventory management is the process that implements inventory policy. The reactive or pull
inventory approach uses customer demand to pull product through the distribution channel. An
alternative philosophy is a planning approach that proactively allocates inventory based on
forecasted demand and product availability. A third, or hybrid, logic uses a combination of push
and pull.

7.5.1 Inventory Control

Inventory control is the managerial procedure for implementing an inventory policy. The
accountability aspect of control measures units on hand at a specific location and tracks additions
and deletions. Accountability and tracking can be performed on a manual or computerized
basis. Inventory control defines how often inventory levels are reviewed to determine when
and how much to order. It is performed on either a perpetual or a periodic basis.

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