Inventory, in a perfect world, is simply a waste. However, this 'waste' is necessary where in the real world we have to face with lead time in acquiring the asset or material: order processing and delivery time, especially with a fact that some items are critical and the stock out costs are substantial.
Inventory has to be managed in a certain level which is not too high to be excessive but not too low to be shortage.
Cost balancing has to be managed carefully; determining order amounts and timing with the aim to reducing associated costs without sacrificing customer needs.
There are specific costs associated with inventory: acquisition costs; landed costs; carrying or holding costs; ordering costs; back order or stock out and opportunity costs.
Some factors to consider in setting inventory policy are:
Objectives of Aggregate Inventory Management (APICS)
Inventory grouping helps inventory specialists in determining the costs and benefits of a particular group of inventory, aggregated by the following patterns:
Two key performance indicators for inventory:
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