15-1: Identify the various types of inventory.

The types of inventory are raw materials inventory, maintenance, repair and operations (MRO) inventory, work-in-process inventory, and finished-goods inventory.

15-2: Describe the types of inventory costs.

Maintaining inventories can be expensive. The five most common types of costs associated with inventories are purchase costs, ordering costs, setup costs, holding or carrying costs, and stock-out costs.

15-3: Examine the role of inventory in an organization’s supply chain.

Organizations in a supply chain hold excess inventory for several reasons: (a) to meet expected normal demand, (b) to protect against shortages, (c) to benefit from quantity discounts, (d) to guard against future price increases, (e) to meet sales increases caused by seasonal demand and sales promotions, (f) to reduce transportation costs and transit times, and (g) to smooth out fluctuations in production requirements.

15-4: Use inventory management measures to determine the efficiency of an inventory system.

Some of the key measurements companies use to track how well a firm’s inventory is being managed include backorders and lost sales, inventory turnover, order fulfillment lead times, item fill rates, days of inventory in stock, inventory accuracy, and industry benchmarking. Inventory turnover is a measure of how frequently a business sells or replenishes its inventory in a given period.

15-5: Illustrate key features in inventory management systems.

Inventory control systems include continuous review systems, periodic review systems, and single-period systems. For continuous review, inventory levels of every item in stock, including its quantity and availability, are monitored and updated on a continuous basis. Periodic review systems physically count inventory periodically, such as weekly, monthly, or annually, and all reordering takes place at these intervals. In a period-review system, inventory is counted on a periodic basis (monthly, quarterly, or annually). One way to improve the management of inventory is to categorize it using the ABC classification method.

15-6: Identify the causes of the bullwhip effect and other causes of uncertainty in supply chain inventories.

The bullwhip effect occurs when a small change in the demand for a product downstream in a supply chain reverberates dramatically upstream in the supply chain. The bullwhip effect is caused by revised demand forecasts, order accumulation, price fluctuations, and rationing and shortage gaming. Three methods for mitigating the bullwhip effect are information sharing, channel alignment, and improved operational efficiency. 

15-7: Explain how companies can include sustainability and ethical practices in inventory management.

Among the strategies to make inventory systems sustainable are (a) applying lean principles in managing inventories, (b) including sustainability into the inventory classification scheme, (c) using environmentally friendly materials in product development and manufacturing, and (d) using technology. There are several ways that ethical lapses may occur in inventory management situations. Ethical violations may occur if firms mislead buyers about the price of storing inventory for them or the status of their inventory, cover up damaged products that are ready for shipment, and manipulate inventory figures and levels when questions about the status of the inventory are raised by outside buyers or auditors or internally by a company’s managers or internal auditors.

15-8: Demonstrate the requirements for managing inventory in global supply chains.

The first requirement for managing inventories in global supply chains is for companies to have a clear understanding of the nature of their business operations (manufacturing, retail, service, and so on) and the impact globalization has on their supply chains. Second, global companies must understand that managing inventories across their supply chain partners abroad requires radically different tools than the ones used to manage inventories in domestic supply chains.

15-9: Describe how service firms apply inventory management methods to their operations.

Although services are intangible, service-sector companies also hold tangible goods as inventory. For example, in the hospitality industry, restaurants carry food products and cooking ingredients in their inventories. Similarly, empty rooms in hotels or unoccupied seats in airlines are regarded as unused inventory. In the financial services industry, monetary instruments and funds available for lending can be considered as inventory waiting to be used.

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