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Contents Page

Introduction

Characteristics of inventory Planning and Control


Introduction

The aim of this assignment is to critically discuss and evaluate inventory management
systems and the influence these systems have on improving organizational performance.
Firstly the characteristics of inventory planning and control will be explored with specific
reference to the key characteristics of quality, quantity and time. Secondly different
inventory management systems will be analyzed and their effect on operations objectives
such as quality, speed, flexibility, dependability and cost. Thirdly the challenges and
benefits of implementing an inventory management system will be examined using
examples from companies in the South African context such as Toyota and Spar.

Characteristics of Inventory Planning and Control

Inventory planning and control is “compensating for the differences in timing between
the supply and demand of material resources”(Pycraft et al., 2007: 418). The three main
characteristics of inventory planning and control include quantity, quality and time
(Pycraft et al., 2007). These characteristics affect the link between the supply and
demand of products and services as well as the link between the operations resources and
customers (Pycraft et al., 2007). In order to ascertain the quantity of inventory for
optimal organizational performance, a manager must order the correct amount of
inventory. This is known as the volume or quantity decision (Pycraft et al., 2007). The
volume decision consists of two components, namely that of cost and maintaining the
balance between supply and demand. In order to make the right decision in the inventory
planning and control process a manager has to consider all the costs involved, these costs
include the cost of placing an order, price discount costs for large quantity orders, stock-
out costs (the cost of failing to supply the customer), working capital costs (the lag-time
between paying our suppliers and receiving from our customers), storage costs,
obsolescence costs and production inefficiency costs (Pycraft et al., 2007). Many models
have been formulated in order to determine an optimal order quantity that allows one to
minimize the sum of setup and holding costs. These models include the economic order
quantity model, the economic batch quantity model, the production order quantity model
and the quantity discount models (Heizer & Render. 2006).

The second main characteristic of inventory planning and control is time. Managers must
decide when to place an order for inventory, this is especially important when demand is
fluctuating (Pycraft et al., 2007). The lead time and variability of demand both influence
the level of safety stock that one needs to maintain (Pycraft et al., 2007). Either managers
can order new inventory when the re-order level of inventory have been reached
(continuous review), or they can order different quantities of inventory at fixed time
intervals (periodic review) (Pycraft et al., 2007).

The third main characteristic of inventory planning and control is quality. Managers must
determine how to control the system (Pycraft et al., 2007). This includes the installation
of procedures and routines that prioritize different stock items, the ABC classification of
stock uses the Pareto principle to differentiate between class A items, class B items and
class C items (Pycraft et al., 2007). These classes are divided up into different values of
stock and the percentage of total stock that the class makes up.
References

Heizer, J., Render, B. 2006. Principles of Operations Management. Sixth edn. Upper
Saddle River, New Jersey. Prentice Hall.

Pycraft, M., Singh, H. & Phihlela, K. 2007. Operations Management. Southern Africa
edn. Great Britain: Pitman Publishing.