Untitled - CII Institute of Logistics

FUNDAMENTALS OF LOGISTICS
Raw Material
This includes all the purchased parts and direct materials that go into the end product. This type of
material has value added to it as it flows together as subassemblies, assemblies and finally into the
shippable product.
Work-in-Process
Refers to the inventory waiting in the process for being assembled into final products.
Finished goods
These refer to the inventory, which are ready for delivery to the distribution centers, retailers, and
wholesalers or to the customers directly.
Inventory Efficiency in the Supply Chain
Lowering inventories is one of the quickest ways to substantially decrease working capital needs. The
drive for working capital use efficiency with the need to more quickly respond to changes in customer
demand, with shorter and shorter order-to-delivery cycle times is challenging to many manufacturers. In
times past, manufacturers would stockpile large quantities of raw materials; load-up the shop floor with
work-in-process; and, pack warehouses with finished goods. Not only do those old ways increase
working capital needs, they are a big factor in contributing to erratic and longer lead times as well as
increasing overall costs.
The pressures to reduce inventories, and therefore working capital requirements, are increasing even in
times of relatively low interest rates. The opportunities to use a finite source of capital, not just more
efficiently but in ways that yield high rates of return for employing the essentially idle capital elsewhere
in the business. For example, reducing inventories could provide the necessary capital to finance such
things as: new product development, expanded marketing and sales, modernization, business process
redesign, improved supply chain management, expansion, acquisitions, debt reduction among others.
Inventory Control: Improving the Bottom Line
CII INSTITUTE OF LOGISTICS 22
Website: www.cii.in / www.ciilogistics.com