Business
Just-In-Case Inventory Management
Just-in-case inventory management involves holding a surplus of inventory to guard against unexpected demand or supply chain disruptions. This approach aims to prevent stockouts and maintain customer satisfaction, but it can tie up capital and lead to higher storage costs. It is often used in industries with unpredictable demand or long lead times for replenishment.
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3 Key excerpts on "Just-In-Case Inventory Management"
eBook - PDF- Don Hansen, Maryanne Mowen, Dan Heitger, , Don Hansen, Maryanne Mowen, Dan Heitger(Authors)
- 2021(Publication Date)
- Cengage Learning EMEA(Publisher)
Inventory ties up money that could be used more productively elsewhere. Thus, effective inventory management offers the potential for significant cost savings. Furthermore, quality, product engineering, prices, overtime, excess capacity, ability to respond to customers (due-date performance), lead times, and overall profitability are all affected by inventory levels. Describing how inventory policy can be used to reduce costs and help organizations strengthen their competitive position is the main purpose of this chapter. First, we review Just-In-Case Inventory Management —a traditional inventory model based on anticipated demand. Learning the basics of this model and its underlying conceptual foundation will help us understand where it can still be appropriately applied. Understanding Just-In-Case Inventory Management also provides the necessary background for grasping the advantages of inventory management methods that are used in the contemporary manufacturing environment. These methods include JIT and the theory of constraints. To fully appreciate the theory of constraints, a brief introduction to constrained optimization (linear programming) is also needed. Although the focus of this chapter is inventory management, the theory of constraints is much more than an inventory management technique, and so we also explore what is called constraint or throughput accounting . Just-In-Case Inventory Management Inventory management is concerned with managing inventory costs. Three types of inventory costs can be readily identified with inventory: (1) the cost of acquiring inventory (other than the cost of the good itself ), (2) the cost of holding inventory, and (3) the cost of not having inventory on hand when needed. If the inventory is a material or good acquired from an outside source, then these inventory-acquisition costs are known as ordering costs .
- William Bolton(Author)
- 2014(Publication Date)
- Newnes(Publisher)
An approach, however, that is frequently used by many companies is, because they are not sure of the demand, just-in-case buying and building up of stocks. They wish to make sure that whatever the demand, they will not run out of stock and so the machines and operators in production will be kept fully working. The cost of running out of materials is judged to be greater than the cost of holding materials in store. A new approach which is becoming widely adopted sjust~in-time. This involves only obtaining stocks when they are required. It means taking a risk that the demand will not have been accurately forecast and there might be insufficient stock to keep production working. This is a policy which originated in Japan. It has been suggested that the policy arose because of the shortage of space in Japan and hence the high cost of storage space. Just-in-time is based on such requirements as: 1 Goodforecasting of demand In order that materials can be delivered at just the right time, or customers receive their orders from a company at the right time, considerable attention must be devoted to forecasting demand. 2 Stringent quality assurance The materials received must, because they are delivered just at the moment they are required, be of the required 140 Engineering and Commercial Functions in Business quality. Rejecting materials because they are not up to the required quality would present severe problems. Likewise, the products of a company, because they are only made so that they are ready at the instant when the demand for them occurs, must be of the required quality. Rejecting products at that stage would mean hold ups in the delivery of products to customers. 3 Delivery dates must be met Suppliers must meet delivery dates for materials. Likewise, the production department of a company must be able to deliver finished goods on time.
- Mbanje S, Lunga J (Editors)(Authors)
- 2016(Publication Date)
- Van Schaik Publishers(Publisher)
146 CHAPTER 10 INVENTORY ISSUES IN SUPPLY CHAIN MANAGEMENT and efficiency that best supports the company’s competitive strategy and inventory. This must work together with transportation, information, facilities, sourcing and pricing, which are the main drivers of supply chain performance. In an operational setting, inventory management is accomplished through the use of a set of procedures normally called an inventory management system, which include a set of decisions, rules and guides for various inventory situations. Inventory includes all those goods and materials that are used in the production and distri-bution processes. It encompasses all raw materials, work in progress and finished goods within the supply chain. Raw materials, component parts, subassemblies and finished products are all part of inventory, as are the various supplies required in the production and distribution process. Changing inventory policies can dramatically alter the supply chain’s efficiency and responsiveness . Inventory management policy affects how efficiently a firm deploys its assets in producing goods and services. Inventory ties up capital, uses storage space, requires handling, deteriorates, sometimes becomes obsolete, incurs taxes, requires insurance, can be stolen and is sometimes lost. How-ever, the benefits of a properly managed inventory outweigh the costs of maintaining it. Devel-oping effective inventory control systems to reduce waste and stock-outs in manufacturing or service organisations is a complex problem. The right amount of inventory supports manu-facturing, logistics and other functions, but excessive inventory is a sign of poor inventory management that creates an unnecessary waste of scarce resources. Besides, excessive inventory adversely affects financial performance. Inventory compensates for inefficient management, including poor forecasting, haphazard scheduling and inadequate attention to set-up and ordering processes.
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