Operations Management: An Integrated Approach, 5th Edition

Chapter Highlights

Raw materials, purchased components, work-in-process (WIP), finished goods, distribution inventory and maintenance, repair and operating supplies are all types of inventory. Inventories have several uses: anticipation inventory is built before it is needed; fluctuation stock provides a cushion against uncertain demand; cycle stock is a result of the company's ordering quantity; transportation inventory includes items in transit; speculative inventory is a buildup to protect against some future event; and MRO inventory supports daily operations.

The objectives of inventory management are to provide the desired level of customer service, to allow cost-efficient operations, and to minimize inventory investment. Customer service can be measured in several ways, including as a percentage of orders shipped on schedule, a percentage of line items shipped on schedule, a percentage of dollar volume shipped on schedule, or idle time due to material and component shortages. Cost-efficient operations are achieved by using inventory as buffer stocks, allowing a stable year-round workforce, and spreading the setup cost over a larger number of units.

Inventory investment is measured ...