Inventory management involves efficient monitoring and controlling the ordering, storage, and usage of components that any firm holds in stock. There are various costs attached to inventory management which when not properly evaluated and managed can result in losses due to high expenses.
Carrying Costs
This is the costs associated with holding inventory in a warehouse over any given period. This, for instance, is the opportunity costs that arise from the slower introduction of other improved goods and inventory value since the money could be used for other purposes (Bowersox, Closs & Copper, 2002; Cachon & Fisher, 2000). Rent paid for holding the inventory is also its carrying cost.
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Procurement Costs
This is the charges associated with ordering of inventory and other related inbound logistics from the time an order is made to when it is received in the warehouse . It is dependent on the quantity ordered, if in excess or less.
Out of stock Costs
This is the cost or economic consequences associated with a business not able to meet its external or internal demand from the existing inventory that it has in stock. This, for instance, is the loss of revenue that would otherwise have been accrued from the sales if the firm had sufficient inventory at hand (Bowersox, 2002).
Which of the three main Inventory philosophies (Push, Pull, JIT) do you feel would be most beneficial to your situation?
Just in time philosophy would be the best form of inventory management for the warehouse. This methodology will be of benefit since it increases operation efficiency, lowers the holding costs and also reduces waste (Bowersox, Closs & Copper, 2002). These advantages are made possible by the JIT policy involves ordering, receiving and holding inventory only when it is necessary and needed for production or sales purposes. It cuts on expenses such as holding cost.
What are some of the reasons that you would like to build up, or reduce the inventories in your store?
I would increase the inventory I hold in store to be protected against order delays that may result to stock out costs. It would also assure continuous distribution of our products resulting in customer satisfaction.
I would, however, reduce inventory in storage when there is need of cutting on the holding cost. Additionally, with a continuously changing environment, it would be of benefit to reduce inventory to for the business to react faster to any changing needs that arise since selling off less inventory is easier (Cachon & Fisher, 2000).
References
Bowersox, D. J., Closs, D. J., & Cooper, M. B. (2002). Supply chain logistics management (Vol. 2). New York, NY: McGraw-Hill.
Cachon, G. P., & Fisher, M. (2000). Supply chain inventory management and the value of shared information. Management science , 46 (8), 1032-1048.
