This chapter is from the book
This chapter is from the book
This chapter is from the book
Overview of the Book
Considering that inventory management is clearly a fundamental aspect of supply chain management, this book has been developed to outline the concepts and techniques at the heart of effective inventory decision-making. As we established in this chapter, inventory management is a far-reaching and expansive subject. Because of this, we can’t make claims that this book will be exhaustive, by any means. However, we have carefully pieced together what we consider to be the key frameworks and approaches to assist the reader in better understanding the “what, why, how, and by what means” of inventory management decision-making.
Chapter 2, “Inventory Management Fundamentals,” builds on the definitional discussion in this chapter and provides foundational insights into the key terminology and concepts involved in inventory management. Chapter 2 highlights the different types of inventory and the various cost drivers and cost categories associated with these inventories. Because there is often confusion in discussions about inventory that is a result of lack of terminology, we carefully and thoroughly consider many different and overlapping inventory concepts. A thorough understanding of Chapter 2 facilitates your understanding of the remainder of the book.
Chapter 3, “Inventory Control,” takes the inventory management discussion further by focusing on the analyses used to make well-informed inventory decisions. Chapter 3 presents frameworks that assist in determining when inventory should be ordered, how much should be ordered, and ultimately how the inventory ordered should be managed and accounted for. The chapter concludes with some examples of managerial issues that firms have faced when implementing several of these inventory approaches. This portion of the chapter was developed to help contextualize the analysis techniques by sharing certain roadblocks, problems, and unique successes that some firms have realized when putting these theoretical concepts to practice.
Chapter 4, “The Link Between Inventory Management and Forecasting,” looks at forecasting within the context of inventory management. It is really impossible to even examine inventory management without thoroughly discussing forecasting and how it relates to inventory decisions. You need to know how many units you are expecting to sell if you want to order an appropriate quantity at the appropriate time. In addition, the error in forecasts also contains useful information, because it is an indicator of how much uncertainty there is in demand.
Chapter 5, “Discrete Event Simulation of Inventory Processes,” describes a tool that is useful for analyzing inventory processes, the effects of forecasting methods on inventory processes, and how execution failures affect the performance of the inventory system—namely, discrete event simulation. Discrete event simulation is used to study a wide variety of processes and systems, but we are discussing its use only within the context of forecasting and inventory management. Furthermore, many software packages are specifically designed for discrete event simulation, but we explain how to conduct discrete event simulation in Microsoft Excel.
Prior to Chapter 6, we primarily look at inventory management from the perspective of an individual stock-keeping unit (SKU), but in Chapter 6, “Additional Inventory Management Processes and Concepts,” we consider inventory management with multiple SKUs. One must clearly understand inventory management and theory from the single SKU perspective to be able to fully understand multi-item inventory management since many of the concepts from single item inventory management are used in the discussion of multi-item inventory management. In addition, up to Chapter 6, we only discuss single echelon inventory management, but in Chapter 6 we extend the discussion to include multi-echelon inventory management. Many other related concepts are discussed in Chapter 6, including distribution requirements planning, which is certainly a multi-echelon concept.
Chapter 7, “Managing Supply Chain Inventory Flows,” looks at a number of topics related to overall management of the flow of inventory, including who owns the inventory, who makes decisions about when and how much to order, where the product flows vis-à-vis where the marketing transactions occur, and other related topics. We also look at questions about where inventory should be held and how orders can cause additional uncertainty in demand as they move up the supply chain.
Although performance measurement is discussed both directly and indirectly throughout Chapters 2 through 7, Chapter 8, “Inventory Performance Measurement,” focuses on inventory management performance measurement, covering some metrics we do not cover earlier in the book but are important in the discussion. We carefully include content regarding cost trade-offs and cost/service trade-offs throughout the discussion of performance measurement. This is important because many times companies focus on some set of performance metrics at the cost of others that are ignored or not measured.