Inventory Management in Supply chain – Role and importance of inventory in SC, Inventory Policies, Inventory as an element of customer service, JIT, BBA Notes

1. LOGISTICS
MANAGEMENT
Unit-5
PRESENTED BY
K.BALASRI PRASAD
B.Sc(KU), M.B.A(OU), NET(UGC), (Ph.D)(MGU)

2. Unit-5
Inventory Management in Supply
chain – Role and importance of
inventory in SC, Inventory Policies,
Inventory as an element of
customer service, JIT, VMI,
Outsourcing, Factors influencing
the decision making process of
outsourcer.

3. Inventory:
Inventory or stock is the goods
and materials that a business
holds for the ultimate goal of
resale.
Inventory management is a
discipline primarily about
specifying the shape and
placement of stocked goods.

4. Inventory Management:
A component of supply chain
management, inventory management
supervises the flow of goods from
manufacturers to warehouses and
from these facilities to point of sale.
A key function of inventory
management is to keep a detailed
record of each new or returned
product as it enters or leaves a

5. Benefits of Inventory
Management:
1. Inventory Balance: Good inventory
management helps you figure out exactly how
much inventory you need. This makes it easier
to prevent product shortages and keep just
enough inventory on hand without having too
much.
2. Inventory Turnover: You need to keep a
high inventory turnover ratio to ensure your
products aren’t spoiling, becoming obsolete or
sucking up your working capital. Calculate how

6. 3. Repeat Customers: Good inventory
management leads to what every business owner
wants – repeat customers. One way to do this is
to make sure you have what they’re looking for
every time they come.
4. Accurate Planning: Using smart inventory
management, you can stay ahead of the demand
curve, keep the right amount of products on hand
and plan ahead for seasonal changes.
5. Warehouse Organization: If you know which
products are your top sellers and what
combinations of products your customers often
order together, you can optimize your warehouse
setup by putting those products close together

7. 6. Employee Efficiency: You can empower your
employees to help you manage inventory. Training
employees to use barcode scanners, inventory
management software and other tools helps them
make better use of their time, and it helps your
business make better use of its resources, both
human and technological.
7. Inventory Orders: If you’ve done a good job
keeping track of how much inventory you have on
hand, you can make smarter decisions about when
and what to order. Inventory management software
lets you speed up the ordering process.
8. Inventory Tracking: If you have multiple
locations, then inventory management becomes

8. 9. Time Saving: Inventory management
is a great time-saving tool. By keeping
track of all the products you have on hand
and on order, you can save yourself the
hassle of doing inventory recounts to make
sure your records are accurate. This once
again requires inventory management
software.
10. Cost Cutting: When your inventory is
humming along efficiently through your
facilities, you can bet you’ll save a lot of
money. Inventory management helps you

9. Role of Inventory Management in Supply
Chain:
The most fundamental role that inventory plays in
supply chains is that of facilitating the balancing of
demand and supply. To effectively manage the
forward and reverse flows in the supply chain, firms
have to deal with upstream supplier exchanges and
downstream customer demands.
The operations groups are able to get updated and
direct sales forecasting information, which can assist
in planning for future inventory needs. Such
information may very well result in shifts in
manufacturing plans or alterations to procurement
needs

10. Importance of Inventory Management in Supply
Chain:
a) Efficient management of Inventory has played
a vital role in deciding a firm’s ability to operate
with good profit margins.
b) High Inventory Turnover ratio indicates that a
company is efficient in managing its
inventories and is having high sales.
c) Having low inventory might often result in
company not being able to meet the committed
service levels.
d) Firms now believe that excessive cash tied up
in unwanted inventory can be utilized in other

11. e) The idea of an integrated inventory
management has helped companies through
Optimization and Coordination.
f) Reduce Operating Costs,
* Decreases Purchasing Cost
* Decreases Production Cost
* Decreases Total Supply Chain Cost
g) Improve Financial Position
* Increases Profit Leverage
* Decreases Fixed Assets
* Increases Cash Flow

12. Inventory Policies
R,Q
 R,Q is a fixed replenishment point/fixed replenishment quantity
inventory policy. When the inventory level on-hand falls below a
certain replenishment point, R, the site will generate a
replenishment order for a certain quantity, Q, of this product.
When using this policy, the Reorder Point field is set as the
trigger level. The Reorder/Order Up To Qty field will be the exact
number of units reordered.
s,S
 s,S is a minimum/maximum inventory policy. When the
inventory level on-hand falls below a minimum, s, the site will
generate a request for a replenishment order that will restore
the on-hand inventory to a target, or maximum, number, S.
When using this policy, the Reorder Point field is the minimum,

13. Demand Flow
 In Demand Flow policy, there is no strict inventory
control. Instead, every order that arrives at this site
for this product is not filled out of on-hand or
available inventory but passed upstream to
sourcing policies. When the upstream site fulfills
the order and ships to this site, the fulfilled order is
sent downstream.
DOS - Demand Based
 Days of Supply (DOS) - Demand Based is similar
to an s,S inventory policy except that the
parameters for minimum and maximum levels are
specified in number of days rather than product
quantities. This policy computes the daily average

14. DOS - Forecast Based
 DOS - Forecast Based is similar to an s,S inventory policy
except that the parameters for minimum and maximum
levels are specified in number of days rather than product
quantities. This policy computes the daily average of
product by looking forward and using forecasted demand.
How far forward to look is given by the DOS Window field.
Forecast quantities must be entered into the Forecasts
table.
R,Q - Targets
 The R,Q - Targets inventory policy allows the user to
change the Reorder Point (R) and Reorder Quantity (Q)
based on a period of time designated by the user (year,
quarter, month, day, etc.)
 When using the R,Q - Targets inventory policy, the

15. Inventory as an element of Customer
Service:
A comprehensive understanding of the impact of
inventory control on customer satisfaction helps to
create an effective inventory management system.
Time to Fulfillment:
Good inventory control leads to analyze product
sales, which makes popular items in-stock and ready
to instantly fulfill any customer’s order.
Returns:
When product is returned because it is damaged
or dead on arrival, and it is still under warranty,
manufacturer do an instant swap of the product to

16. Pricing:
When a warehouse don’t carry extra inventory for
extended periods of time, inventory costs decrease.
This is a savings which can be passed on to
customers in the form of lower pricing.
In Stock:
By being able to give customers accurate
inventory information, one can improve the image of
one’s company and add one more element to
customer retention.

17. Just-in-Time(JIT)
 Just-in-time (JIT) manufacturing originated in Japan in
the 1960s and 1970s; Toyota Motor Corp. (TM)
contributed the most to its development. The method
allows companies to save significant amounts of
money and reduce waste by keeping only the
inventory they need to produce and sell products. This
approach reduces storage and insurance costs, as
well as the cost of liquidating or discarding excess
inventory.
 JIT inventory management can be risky. If demand
unexpectedly spikes, the manufacturer may not be
able to source the inventory it needs to meet that
demand, damaging its reputation with customers and
driving business towards competitors. Even the