Managing Inventories: Concepts, Questions, and Tools

by: Eric Svaan

Publication Date: November 26, 2012
Length: 12 pages
Product ID#: 1-429-246

Core Disciplines: Operations Management/Supply Chain

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Teaching Note

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This reference note introduces inventory concepts, tradeoffs involved in their management, and tools for effective inventory decision-making. Students of business operations will find these concepts, tradeoffs, and tools useful as background for thinking about inventory management issues, preparing and discussingoperations cases, and making good inventory management decisions. Teachers and practitioners may find this note useful to help students and others understand inventory management situations that they will encounter in classroom and field settings.

Teaching Objectives

After reading and discussing the material, students should:

  • Define key concepts in inventory management, including: Definitions and Measures—demand (expected value and variability), setup/ordering and holding costs, service level, safety stock, costs of understocking and overstocking, exposure period, lead time, review period, reorder point, stock keeping unit, and pooling
  • Answer the 5 critical questions: How much should I order? What is the best service level and target stock level? How much safety stock should I plan to keep? How will I meet demand in an exposure period? How do I manage variety?