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Functions of Inventory..3
Types of Inventory...........3
Inventory Management...........4
Record Accuracy.........................4
Cycle Counting............................5

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Introduction mand on time, if there is fluctuation in de-
mands of products.

All organizations keep inventory to know existing Unreliability of supply: Inventory protects you
items within the company. It permits to strike a balan- from unreliable suppliers or difficulties to get
ce between inventory investment, stockage levels, and the products.
the planning and control system to satisfy customer
service. It includes the companys raw materials; work Price protection: Buying quantities of inven-
in process, supplies used in operations, and finished tory at appropriate times helps to manage the
goods. impact of inflation. It also reduces the cost of
goods or their delivery.
Buffer/safety inventory: Inventory permits to
Functions of Inventory have products for high demands. It permits to
decouple and separate the different parts of
the production process from suppliers.
Some organizations consider inventory as a waste of
time while other organizations with poor cash flow or Anticipation Stock: With inventory, we can an-
that lack strong control transfer electronic information ticipate the upcoming season by keeping items
to all the departments and all significant suppliers, and such as fancy chocolates for Mothers Day or
lead times, and quality of materials sent or received. Valentines Day.
The functions of inventory are: Transitory inventory: We can have inventory
Predictability: Recognizing and planning the en route from one place to another. It refers to
production schedule of products. It is neces- items moving within the distribution channel
sary to control how much raw material or how toward you, items outside the facility, or items
many parts the company is going to require. en route from your facility to the customer .

Fluctuations in demand: A previous supply

of inventory permits to have products at any Different types of stock by Waters, D.
time to satisfy customer or production de-

Work in progress

Operations in the
Rawm aterial Finished goods

Consumables Spare parts

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Organizations establish the functions of inventory ac- The ABC analysis (Pareto principle) is an inventory
cording to the items and purposes. These are (1) raw application to state critical few and trivial many. It
material inventory, (2) work-in-process inventory, (3) permits to establish inventory policies to organize re-
maintenance/repair/operating supply (MRO) inven- sources according to grades of attention focused on
tory, and (4) finished-goods inventory. rates of sale, value per unit, cost of storage, or value of
the item to the customer. It is based on annual dollar
volume .
Raw material inventory: They are products
without any process.
Management of items with high rates of sale.
Work-in-process inventory (WIP): They are Inventorying these items saves costs and brings
components, products or raw materials. They sales benefits from the good application of in-
are currently being processed but the process ventory control techniques.
is not completed. It takes time to be processed
(Cycle time). Management of items with high value per unit.
Inventorying expensive items permits to have a
Maintenance/Repair/Operating supply (MRO) great value or reduce inventory.
inventory: They are materials kept for ma-
chinery or equipment. These parts support Management of items with costly storage re-
operations, but they do not form a part of the quirements. Inventory of products with special
final product. attention for storage. They require expensive
methods of storage. As an example, we can
Finished-goods inventory: They are products mention frozen food.
finished to be shipped to customers .
Management of items with high strategic value
to customers. Inventory exclusive and expen-
sive items are only valuable for the customer.
Inventory Management For example, an automobile is in New York but
someone needs it in Cincinnati .
Operations managers establish systems for managing
inventory. They consider: (1) how inventory items can
Record Accuracy
be classified (called ABC analysis), and (2) how accura-
te inventory records can be maintained. Good inventory policies need to be precise by records
in production and inventory systems. Record accuracy
ABC analysis
allows organizations to focus on those items that are
Rates of sale
needed and that cannot be supposed to be in the in-
A ventory. Only when an organization can accurately de-
Value per unit
termine what is on hand can it make precise decisions
B Cost of storage
about ordering, scheduling and shipping. To ensure ac-
C Value to customer curacy, incoming and outgoing records have to be good

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and accurate. It is necessary to have a well-organized
stockroom with limited access, good housekeeping, printsec=frontcover&dq=inventory&hl=es&sa=X&ei=
and proper areas to keep the inventory. mW66T4HCOoeagwfg4uSrCg&ved=0CE8Q6AEwBA#v

Cycle Counting
Heizer, J., & Render, B. (2009). Operations strategy in
a global environment. In Pearson Prentice Hall, Ope-
After recording accuracy, organizations need to accu- rations Management (pp. 25-49). New Jersey: Pearson
rately record inventory. They have to continue on au- Education, Inc.
diting. Those audits are called Cycle Counting. It uses
inventory classifications through ABC analysis. Witch
Cycle Counting procedures, items are counted, then
Langford, J. (1995). Inventory management. In Jim Jo-
traced and appropriate remedial actions are taken to
nes Editor, Logistics Principles and Applications (pp.
ensure the integrity of the inventory system. It can be
367-379). The United States: McGraw- Hill.
done once a quarter or every 6 months.

Mller, M., (2011). Inventory as both a tangible and an
intangible object. In Essentials of Inventory Manage-
Inventory: A list of the items held in stock. ment (pp. 1-6). The United States of America. Retrieved
Item: A distinct product that is kept in stock.
Stock: Consists of all the goods and materials that are
stored by an organization. It is the store of items that is
kept for future use.
Unit: The standardized size or quantity of an item.

References Ronnieb. (Photographer). (2005). DSCF3836 (Photo).

Retrieved on August 13th 2012, from http://www.mor-
Center for Inventory Management. (2012). What is In-
ventory Management. Retrieved on August 8th 2012,

Donal Waters, D., (2003). Stocks and inventories. In

John Wiley & Sons Ltd, Inventory Control and Mana-
gement (pp. 3-10). England: Library of the Congress.
Retrieved from

Servicio Nacional de Aprendizaje - SENA. Reservados todos los derechos 2012.

Self-Test c. safety inventory.
d. unreliability of supply .
Before taking the self- test, refer to text about inven-
tory .
4. Anticipation stock permits
Check your knowledge of key terms in inventory by
choosing the best definitions for these terms.
a. keep items before an upcoming season arrives.

1. Inventory permits to _________in an b. put inventory en route from one place to

organization another.

a. invest money c. buy products before prices increase.

b. produce supplies d. control the production.

c. know existing items

d. control production 5. Raw materials are related to inventory
a. they are natural products without any process.
2. Inventory is useful for the organization
because_______________ b. they are products processed.

a. it wastes time. c. they are parts for machinery or company.

b. it increases cash flow. d. they work in progress.

c. it transfers information to all departments.

d. it has different functions. 6. The ABC analysis is an inventory application
a. keep inventory in an organization.
3. A supplier disruption, a strike or shorta-
ge of imported critical items are possible causes to b. establish policies to organize the inventory.
apply___________________ c. find resources for the organization.
a. predictability. d. reduce cost in the organization.
b. price protection.

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7. Work-in-process inventory are 9. Record accuracy permits to
________________________currently in process of __________________items in the inventory.
a. determine
a. products or raw materials
b. sale
b. prices
c. buy
c. cycle time
d. invent
d. shipped products

10. Cycle counting permits to _____________

8. A perishable product is an example of inventories after they are counted.
___________________in inventory management.
a. audit
a. costly storage requirements
b. record
b. high strategic value to customers
c. register
c. high rates of sale
d. have
d. high value per unit

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