Wednesday, August 6, 2008

Inventory management, demand and customer service

Inventory management is influenced by the nature of demand, including whether demand is derived or independent.
An independent demand is uncertain, meaning that extra units or safety stock must be carried to guard against stockouts. Managing this uncertainty is the key to reducing inventory levels and meeting customer expectations. Supply chain coordination can decrease the uncertainty of intermediate product demand, thereby reducing inventory costs.
The availability of inventory provides customer service. Products in inventory may be unfit for sale because of damage or an expired shelf life. Finally, a seller may not have the capability to accurately track inventory in their stores or distribution centers.
To avoid shortfalls or stockouts, firms carry extra inventory known as safety stock.
Also, if a firm holds too much inventory, it can lead to low inventory turnover and hide operational problems.

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