Inventory Management Essay

1520 Words Dec 21st, 2012 7 Pages
The Role of Inventory in the Supply Chain.’

$1.6 billion, it is an estimation of manufacturers’ and trade inventories in the United States in august 2012 (according to the US Department of Commerce). Inventory represents a significant part of company budgets. They are costly and can be risky, but the company spend a lot of money in inventories because they also provide some security for businesses. But what is exactly the role of inventory? Why it is required and what is its purpose?
This essay explains in a first part what supply chain is. Then in a second part, it defines the term of inventory and this purpose. Finally the last part considers the key role of inventory in the supply chain and how is controlled.
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As previously seen, the inventory is traditionally necessary because it is a mismatch between the supply and demand. The inventory is present throughout the supply chain, from raw material to finished good. In this last part, we shall see more in detail why it is important to have an inventory and which role he can play within the supply chain.

The growing importance of finance in the current economic world often encourages companies to minimize inventory levels and financial assets that result from it. Inventory has a significant cost but improving inventory management can increase the competitiveness and profit of a company. Indeed, according to Thomas Craig (2002), “Inventory is key to profitability (....) the key issue to supply chain management success”.

The role of inventory is a subject which has been studied by a number of authors. For instance, Lambert and Stock (1993) submit five reasons: - Economies of scale - Balancing supply and demand - Specialization - Protection from uncertainties - Inventory as a buffer

The essential role of inventory in the supply chain is to respond to a mismatch between supply and demand. There is often a gap between the demand and the supply so safety stocks or buffer stocks permit to absorb variations. There is also the anticipation inventory which allows compensating differences between supply and demand; a company

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