Basics of Supply Chain Management

Chapter 8

Inventory Management

8.1 Introduction

Inventories are stored resources such as materials and supplies carried on hand by a business organization either for sale or to provide inputs or supplies to the production processes. All businesses and institutions require inventories. Often, they form a substantial portion (from 20% to 60%) of the total assets. Financially, inventory management is very critical to many companies. When inventories are reduced, their value is converted into cash, which improves cash flow and return on investment. On the other hand, there is a cost associated with carrying inventories, which increases operating costs and decreases profits of the company. Therefore, good inventory management is essential to the ...