Inventory is generally defined as the stock of goods/ items/ materials which are intended for future requirements. Inventory has different context when though from various perspectives. E. g. For manufacturing industry, the inventory can be anything starting from raw materials and work in progress to semi-finished or finished good. Whereas, for some retail stores, the term inventory may mean the unsold products which are lying on the shelf.
There are various reasons for this inventory storage.
Various Uncertainties like Supply/Demand Uncertainty, Transportation Delay, Machine Breakdown, etc.
Continuity: Since demand of the product changes continuously w.r.t. time due to technological revolutions and economical factor, there is a need to stock the materials.
Therefore, in order to deal with these, we need a proper inventory management plan. If it is not done in right manner it may lead to two major problems.
Excess Inventory:
As name suggests, It is the stock of materials in excess of what is required. This leads to various problems as mentioned below:
Blocking of Working Capital in the form of dead stock
Depreciation and obsolescence problem
Storage problems
2. Shortage/Under stock:
This may have direct impact on customers’ turnout. The various problems associated with this are:
Interruption in production
Product unavailability
Loss of customers, etc.
The inventory management plan normally includes generalized inventory policy of the organization, inventory goals and measures to achieve those goals.
The basic Inventory management plan considers following things.
Scrutinizing the demand for inventory:
More the no. of people authorized to make demands for stock, more the inventory will be. Therefore, it becomes imperative to limit this number.
2. Lead times and Reorder Levels:
The lead time i.e. time between the placing of order and actual receipt should be monitored properly and delivery should be expedited, so that lead time will be minimized and ultimately reorder levels to meet the demand during lead time can be reduced.
3. Optimum Safety stock:
Safety stock becomes important to meet the uncertain demands. But it needs to kept in limits.
4. Obsolete Inventory:
This is the major issue in big organizations. As due to major procurements and large lead times as well as tremendous technological advances, it is highly possible that some inventory might become obsolete till the time it comes in actual usage.
Thus the inventory management plan is the plan which addresses all the above issues with proper focus on the goals of the organization, type of the industry as well as the competition in the market.
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