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Companies depend on inventory to balance demand and supply, and to buffer uncertainties in the SC (supply chain). On the other hand, for a company, inventory can be one of the most valuable assets; hence, it should be well managed. The right quantity of inventory helps and supports operations of business, but too little inventory can adversely affect customer service. Conversely, extra inventory or excess inventory not only leads to unnecessary inventory holding but hides manufacturing problems and other flaws in a firm.
This chapter discusses the overall role of inventory and several techniques of inventory management, which are broadly used for balancing supply and demand. The classic ABC classification of inventory was discussed along with the ABC matrix as a means to monitor whether a company is stocking the right inventories. This chapter also discussed RFID technology (radio frequency identification device), which has the potential to radically change the way inventories are managed and controlled in the upcoming future.
KeywordsInventory management Total assets and revenue Independent demand ABC inventory system Inventory turnover ratio Economic order quantity model Physical inventory Quantity discount model Economic manufacturing quantity Periodic review system Continuous review system Constant demand Holding cost Setup cost Dependent demand Optimal order quantity Cycle counting Direct cost Electronic product code Pareto analysis Price-break model Radio frequency identification Variable costs 80/20 Rule
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