Inventory management (12)

Question 1

SUMMARY

Answer 1

In summary, the following are covered in this topic:
1. There are three main types of inventory: raw materials and components, work
in progress and finished goods.
2. Inventories are important to businesses as they act as insurance against
uncertainties; allow operations to take advantage of short-term opportunities;
help anticipate future demands; and possible increase in value.
3. The costs of holding inventories include opportunity costs, storage costs and
risks of wastage and obsolescence.
4. By holding inventories, businesses can prevent lost sales, idling production
resources, expensive special orders, and expensive small order quantities.
5. The inventory control chart is graphically used to illustrate a system of
controlling inventory. The assumption is that sales remain constant.
6. JIT is an inventory management system that requires inventories to be delivered
just when it is needed in the production process. This means that no buffer
inventory is held.
7. For JIT to be successful, important requirements must be met. The JIT inventory
control has advantages and disadvantages, but may not be suitable for all
businesses.