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Chapter 12 Inventory planning
and control
Key questions
➤ What is inventory?
➤ Why is inventory necessary?
➤ What are the disadvantages of
holding inventory?
➤ How much inventory should an
operation hold?
➤ When should an operation replenish
its inventory?
➤ How can inventory be controlled?
Introduction
Operations managers often have an ambivalent attitude towards
inventories. On the one hand, they are costly, sometimes tying
up considerable amounts of working capital. They are also risky
because items held in stock could deteriorate, become obsolete
or just get lost, and, furthermore, they take up valuable space in
the operation. On the other hand, they provide some security in
an uncertain environment that one can deliver items in stock,
should customers demand them. This is the dilemma of inventory
management: in spite of the cost and the other disadvantages
associated with holding stocks, they do facilitate the smoothing
of supply and demand. In fact they only exist because supply
and demand are not exactly in harmony with each other
(see Fig. 12.1).
Figure 12.1 This chapter covers inventory planning and control
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