Operations Management: Processes and Supply Chains, 12th Edition

Inventory Trade-offs

The value of inventory management becomes apparent when the complexity of the supply chain is recognized. The performance of numerous suppliers determines the inward flow of materials and services to a firm. The performance of the firm determines the outward flow of services or products to the next stage of the supply chain. The flow of materials, however, determines inventory levels. Inventory is a stock of materials used to satisfy customer demand or to support the production of services or goods. Figure 9.1 shows how inventories are created at one node in a supply chain through the analogy of a water tank. The flow of water into the tank raises the water level. The inward flow of water represents input materials, such ...