Operations Management For Dummies, 2nd Edition

Chapter 8

Managing Inventory

IN THIS CHAPTER

Understanding the importance of balancing inventory with customer demand

Using different systems to manage inventory

Evaluating your inventory management system

Using commonality and postponement strategies to reduce inventory

Looking at inventory across the entire supply chain

Inventory refers to all the forms of material eventually intended for sale that a business maintains, including raw materials, work in process, and finished products. In the past, maintaining large stocks of inventory was common practice in manufacturing because primary metrics for evaluating performance centered on utilization, or how busy the company’s resources stayed, and order fulfillment (or back-order reduction), which emphasized the ability to fill customer orders immediately. These metrics led managers to produce more products than were needed, and these parts ended up in inventory. (See Chapter 3 for info on what happens when a process overproduces.)