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This is an introduction to the APICS body of knowl­edge on inventory management from the customers' prospective. Topics covered include real and perpetual inventories, customer service measurements, inventory management and control, inventory strategy, aggrega­tion types and functions of inventory, ABC analysis, in­ventory decisions, forecasting, product and process design, supplier relations, accounting, human resources, and distribution.

At the conclusion of this presentation, you should know the core concepts and definitions of inventory management, appreciate how the customer feels when desired inventory is not available, and understand how you can improve customer service by applying the cor­rect inventory management tools and techniques.

All of the PowerPoint slides used in this presenta­tion are included in the handout. Did everyone get a copy of the handout? Fortunately I planned ahead and built some safety stock, just in case demand exceeded forecast. Was my forecast accurate? Do I have a backorder or a stockout? Are production problems or supply problems prevented me from achieving plan?


The primary role of an inventory manager is that of a decision-make. Inventory decisions are made by many people throughout the organization, and often by people who do not observe the inventory directly. How is this possible? Or does this just explain why so many bad inventory decisions are made?

Most inventory decisions are made by looking at the perpetual inventory, a collection of data that represents the real inventory in something approaching real time. Your perpetual inventory probably resides in your com­puter system, although that is not a requirement. When I was in high school, I had a part-time job posting in­ventory transactions (sales, receipts, and balance on hand) on cards in the parts department of the local Tri­umph and MG dealer. Bill Mullane, the parts manager, would review the cards weekly and place his replenish­ment orders. Alas, card files have since been replaced by Windows and ERPs, and Triumphs and MGs by Toyotas, Hondas, and BMWs.

What if I had failed to post a transaction or posted the wrong quantity, or made some other error? The inventory records would have been inaccurate and Bill would have failed to purchase the correct replenishment quantity. We can only make good inventory decisions if our inventory records are accurate. Unfortunately, we can also make bad inventory decisions even with perfect inventory record ac­curacy. Isn't that just like life? There are so many ways to do something wrong, and so few ways to do it right.



What is the right amount of inventory? That's simple: it's the amount necessary, no more and no less, to give us our desired level of customer service. If our goal is to have inventory available when the customer wants it (this is called make-to-stock, which we will talk about shortly) then we will employ some sort of forecasting system to allow us to make the necessary decisions prior to the lead time required to make or buy the inventory. If our forecasting system is less than 100 percent accurate (what do you mean "if'?), then we can plan to have some additional inventory, called safety stock. For example, two standard deviations of safety stock should provide enough inventory 95 percent of the time. Not knowing exactly how many people would be attending this pre­sentation, I included some safety stock in the number of handouts I should have available for you.

How do we measure customer service? There are a number of ways, such as line or order fill rate, on-time deliveries, or age and quantity on backorder. Basically, all these measure the aggregate success of our inven­tory planning and execution system, and they report the opportunity for our competition to deliver better cus­tomer service.

Service level can also be used to identify excess in­ventory. If our goal was a 95 percent service level, then a 99 percent service level indicates forecast problems, wasted production, and excess inventory. Too much in­ventory can be as bad as too little. Our opportunities for failure are abundant.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 14

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