Definition of Terms

Inventory Management &  Stocks

- consists of all the goods and materials
Control that are stored by an organization for
future use
Stocks and Inventories  Inventory
- a list of all the items that are held in
stock for future use by an organization
- blocked working capital of an organization in
the form of materials
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Definition of Terms Definition of Terms

 Item (Stock Keeping Unit/SKU)
- a distinct product that is kept in stock
and is recorded as one entry in the
inventory
 Unit
- the standard size or quantity of an item
 Inventory Management
- function responsible for all decisions
about stock in an organization
- sets policies, activities and procedures
to make sure the right amount of each
item is held in stock at any time

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Definition of Terms Classification of Stocks

 Supply Chain
- consists of the series of activities and
organizations that materials move
through on their journey from supplier
to final consumer
 Supply Chain Management (Logistics)
- function responsible for the flow of
materials
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 Raw Materials
- materials and components scheduled for use
in making a product or in the performance of
a service
 Work in Process (WIP)
- materials and components that have begun
their transformation to finished goods
 Finished Goods (Merchandise)
- goods which are ready for sale to the
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Classification of Stocks
 Goods in Transit (Pipeline Stock)
- goods which are in the process of distribution
 Spare Parts (MRO Supplies)
- for the maintenance, repair and operation of
machineries and equipments
 Consumables
- items which are needed to support
operations but do not form part of the final
product
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Reasons for Holding Stocks
 Time
- time intervals present in the supply
chain requires that a certain amount of
inventory is maintained for use
 Uncertainty
- inventories are used to cushion the
impact of uncertainties in demand,
supply and movement of goods

Reasons for Holding Stocks Functions of Stocks

 Economies of Scale  To meet anticipated customer demand
- bulk buying, movement and storing  To smooth production requirements
brings in economies of scale  To decouple operations
 To protect against stock outs
Underlying principle in holding stocks is  To take advantage of order cycles
based on the need for a BUFFER  To hedge against price increases
 To permit operations
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Importance of Stocks Stocks in the Supply Chain

 Every organization on a supply chain holds its own stocks
 Allows operations to become more  Basic model of a supply chain for a product consists of:
efficient and productive a. Tiers of Suppliers
b. Tiers of Customers
 Affects lead times and availability of  Main Features of a Supply Chain are:
materials a. Length
- refers to the number of intermediaries that
 Affect operating costs materials flow through
b. Breadth
 Affect broader operations - refers to the number of parallel routes that materials can
move through
 Risky
 Driver of growth of other organizations
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 Cooperation within a Supply Cooperation within a Supply
Chain Chain
 Organizations in a supply chain share a  Ways to achieve cooperation
common overall objective, which is to get final
customer satisfaction a. Establishing an informal and valuable
 Benefits working relationship with all
a. lower costs stakeholders
b. improved performance
c. improved material flow - no commitments
d. better customer service - flexible and non-binding
e. flexibility b. Establishing a formal arrangement
- obligations are clearly outlined
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Trends affecting Stocks Trends affecting Stocks

 Improving Communications  Improving Customer Service
- EDI, E-Mail, E-Procurement
- customer demands drive organizations
a. efficient transfer of information
b. less paperwork to be more competitive
c. fewer errors  Concentration of Ownership
d. more integration - realignment produces a shift of power
e. physical distances are becoming less
in the supply chain
significant

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Trends affecting Stocks Trends affecting Stocks

 Outsourcing Inventory Management (Vendor Managed Inventory)
- using TPL to take over logistics
- allows organizations to focus on their core activities
- benefits:
a. lower fixed costs
b. use of experts, best practices
c. economies of scale
d. guaranteed levels of customer service
e. flexible capacity
f. lower exposure to risks
g. increased geographical coverage
h. convenient way of entering and working in new markets
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 Cross-Docking (DC By-Pass)
- coordination of supply and delivery resulting
in materials being passed on for delivery the
moment it arrives at the receiving area
 Postponement
- moves almost finished products into stock
and delays final modification or customization
- keeping stocks of the basic, standard
products only
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Trends affecting Stocks
 Increasing Environmental Concerns
- cultural trend that has a significant
consequence on inventory
management
- logistics is going “green”
- significant investments on energy,
reusable packaging, recycling, safety,
etc.
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Changing Views of Stock
 Organizations have changed their
attitude toward stocks over time
 The current view is that they are
expensive and should be kept to a
minimum
 Search for ways of removing uncertainty
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