The Logic and Decision Making Process in the Life of an Inventory Manager
In the simplest description, inventory management is actually control on the flow of products in and from a stock of products. Inventory management is vital in production settings, as an disruption with raw materials safely and effectively puts a stop to manufacturing. Possibly even within an office setting, where running low on office supplies can be a hassle, decisions with regards to inventory management impact customer situations and financial constraints.
Actual physical space might limit the quantity of material kept on site. In a production site, place for raw materials needs to be sufficient to supply manufacturing for any provided time period.
Because total area dedicated to storage will not lead directly to product sales, the majority of decisions try to limit the level of floor area utilized without taking a chance on supply for manufacturing.
Smaller sized supply deliveries more often might be one particular solution. Finished products can also be delivered repeatedly or delivered to off site storage area to increase space intended for raw materials.
A number of cost elements impact inventory management choices. The value of materials presents stalled cashflow, resources which don't actively help the net profit. This is where JIT or just in time strategy plays its role. Deliver just where raw materials can be bought as they're utilized, therefore removing costs related to warehouse space as well as rarely used inventory.
Mass purchasing in bulk will be the flip side in the scenario. Vendors might provide discount rates on volumes of materials above your current instant needs. This could increase profit margin for finished products, however only when extra storage and financial fees will be eliminated.
Lead time between purchase and shipping of raw materials is a crucial factor. If the supplier can easily deliver the next day a purchase is placed, the inventory manager has the best overall flexibility, efficiently utilizing the supplier's storage space free of charge.
In the event the time between purchase and shipping is several weeks, the inventory manager should factor this into keeping enough supply, when managing storage space as well as inventory costs. Unless of course you have the choice to change product lines in case of shortage in supply, making sure continuous supply is generally the inventory manager's main concern.
Turnaround offers a number of meanings when it comes to inventory. Where completed products are involved, turnaround describes how long inventory sits prior to sale. A good inventory manager would like this time around to get as quick as possible, although this might be the function of marketing and sales.
Within the inbound part, turnaround is the term for just how long existing inventory supplies manufacturing. Wherever minimal and highest inventory amounts are placed, the minimum amount takes into account supply turnaround along with shipping and delivery time, whilst maximum values deal with storage and cost variables.