Question

Inventory Model Examples

What is inventory management? Why is it important? Identify an example of a inventory system with which you have worked (You can even describe one you use at home for groceries or other items). Discuss how it was managed. Could you have used any of the models discussed in this unit?

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Answer 1

Inventory management is the management of the ordring, storage and consumption of commodities used in home, factories, offices, shops etc. Ordering of right quantity is always inportant due to costs involved in ordering and storing of items. If very frequent orders are placed, the fixed cost of ordering will be forbidding. If too many items are ordered, the cost of holding will be high Therefore, it is essential to order optimum quantity, so as to minimise the costs. This is called inventory management.,the purpose of which is to make an item available when needed , while incurring lowest cost to store and order it. It is importaant to make the business cost effective , yet ensuring that the item is available when it is needed.

The most interesting case is the kitchen of home. Usually, an item is purchased when it seems as exhausting. However, there needs to be some safety stock to meet emergencies ( such as 12 guests visiting the home at 10PM for dinner when all stores are closed). One can't go to superstore everyday ( as it costs money and time everytime besides purchase value), nor one can visit it every month ( some items need to be purchased fresh, and there is a shelf life which will make this system difficult). Therefore, a visit to store every week seems to be a good option. All in all, it is based on approximation and one does not do calculation for EOQ, becuuse the cost differences will not be significant as in case of a factory where the cost of ordering and storage can be high and significant.

Periodic inventory system is a good way to manage kitchens groceries. One can take account of items every saturday evening and buy items good enough to last a week, with some safety stock for each item to meet contingencies.