INVENTORY CONTROL

Business Inventory
The reasons for keeping stock
There are three basic reasons for keeping an inventory:
1. Time - The time lags presetainties in demand, supply and movements of goods.
2. Economies of scale - Ideal condition of "one unit at a time at a place where a user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale, thus inventory.

All these stock reasons can apply to any owner or product stage.
• Buffer stock is held in individual workstations against the possibility that the upstream workstation may be a little delayed in long setup or change over time. This stock is then used while that changeover is happening. This stock can be eliminated by tools like SMED.

These classifications apply along the whole Supply chain, not just within a facility or plant.
Where these stocks contain the same or similar items, it is often the work practice to hold all these stocks mixed together before or after the sub-process to which they relate. This 'reduces' costs. Because they are mixed up together there is no visual reminder to operators of the adjacent sub-processes or line management of the stock, which is due to a particular cause and should be a particular individual's responsibility with inevitable consequences. Some plants have centralized stock holding across sub-processes, which makes the situation even more acute.

Special terms used in dealing with inventory
• Stock Keeping Unit (SKU) is a unique combination of all the components that are assembled into the purchasable item. Therefore, any change in the packaging or product is a new SKU. This level of detailed specification assists in managing inventory.

• Stockout means running out of the inventory of an SKU.[1]

• "New old stock" (sometimes abbreviated NOS) is a term used in business to refer to merchandise being offered for sale that was manufactured long ago but that has never been used. Such merchandise may not be produced anymore, and the new old stock may represent the only market source of a particular item at the present time.

Typology
1. Buffer/safety stock
2. Cycle stock (Used in batch processes, it is the available inventory, excluding buffer stock)
3. De-coupling (Buffer stock that is held by both the supplier and the user)
4. Anticipation stock (Building up extra stock for periods of increased demand - e.g. ice cream for summer)
5. Pipeline stock (Goods still in transit or in the process of distribution - have left the factory but not arrived at the customer yet)

Inventory examples
While accountants often discuss inventory in terms of goods for sale, organizations - manufacturers, service-providers and not-for-profits - also have inventories (fixtures, furniture, supplies, ...) that they do not intend to sell. Manufacturers', distributors', and wholesalers' inventory tends to cluster in warehouses. Retailers' inventory may exist in a warehouse or in a shop or store accessible to customers. Inventories not intended for sale to customers or to clients may be held in any premises an organization uses. Stock ties up cash and, if uncontrolled, it will be impossible to know the actual level of stocks and therefore impossible to control them.
While the reasons for holding stock were covered earlier, most manufacturing organizations usually divide their "goods for sale" inventory into:
• Raw materials - materials and components scheduled for use in making a product.
• Work in process, WIP - materials and components that have begun their transformation to finished goods.
• Finished goods - goods ready for sale to customers.
• Goods for resale - returned goods that are salable.

TO BE CONT...