Purpose and Disadvantages of Inventory Management Processes

Course Name: Business Process
Course No.: BU1293-BG
Course Instructor: SyedaRownakAfza
Submission Date: October 19, 2017
Assignment #1
1.0 Brief Description Of the Process
Inventory management refers to the scientific method of determining the stock re-order levels required to meet the production demand through timely provision of materials, in the right quantities and at competitive prices (Kenneth, 2011). Inventory can actually be thought of as simply money held up in material form. Thus it encompasses all raw materials, unfinished products and finished products, storage space and equipment. Inventory management process refers to the sum total of processes that are involved in planning aimed at ensuring optimal quantities of raw material throughout the production process (Agrahari& Jhunjhunwala, 2012). It also refers to the dynamic techniques employed in supply chain management to manage inventory planning.
1.1 Importance of Inventory Management
Inventory management plays an important role in the enhancement of customer service. It offers immediacy, hence eliminating delays or shortage in product supply. It ensures product supply chain stability and predictability. Secondly, inventory management encourages production, purchase and finally transportation based on economies of scale. In so doing, it takes advantage of long production runs as well as price quantity discounts. Moreover, it permits transport economies of scale by necessitating larger shipment sizes.
Inventory management plays an important role in price hedging ensuring that purchasing is done based on the most favorable prices. It also acts as a precautionary measure against possible uncertainties in product demand and lead times. Last but not least, inventory management acts as a buffer, hedging the organization against exigencies such as natural calamities.
1.2 Disadvantages of Inventory Management Processes
Inventory management process iscapital intensive. This process consumes significant capital resources that could have been injected elsewhere within the firm. Another drawback is that it masks quality problems that could have been easily located in their absence. Lastly, inventory management can divert management’s focus from careful planning of supply and distribution to micro-management of inventory processes.
2.0 Primary Purpose of Inventory Management
Inventory management processes comprises of all methods, techniques and processes that are employed in the organization such asstorage and replenishment of stock. The primary goal of maintaining inventories is to achieve optimal stock levels, thereby completely eliminating stock outs and excess production. The process comprises of two mutually dependent tasks:
1 Maintenance of optimal inventory levels for satisfactory fulfillment of client orders. Optimal stock levels ensure high levels of customer service and satisfaction.
2 Maintaining inventory carrying costs at a bare minimum. This release capital that would have been tied up in inventories thereby leading to profit maximization.
For the inventory management process to be seamless, a tradeoff must be determined for maintaining simultaneity between optimal stock levels and minimum inventory carrying cos...