Effective Inventory Management

 Effective Inventory Management

To be effective, management must have the following:

• A reliable forecast of demand 

• Knowledge of lead times and its variability 

• Reasonable estimates of: 

✓ Inventory holding (carrying) costs

 ✓ Ordering (setup) costs 

✓ Shortage costs 

• A classification system for inventory items 

 Divides inventory into three classes based on annual dollar volume

  Class A - high annual dollar volume 

 Class B - medium annual dollar volume 

 Class C - low annual dollar volume 

 Used to establish policies that focus on the few critical parts and not the many trivial ones

A - very important 

B - moderate important

 C - least important