Supply Chain Management and Inventory Control Essentials

Supply Chain and Logistics Fundamentals

The movement of materials, work-in-process inventory, and finished goods from the point of origin to the point of consumption involves interconnected networks. These interlinked networks, channels, and node businesses combine to provide the products and services required by end customers within a supply chain.

Core Components of Logistics

Logistics involves several key functions and processes:

• Purchasing raw materials and component parts (procurement): This includes managing the bargaining power of suppliers; companies might produce their own components or lease them.
• Managing inventory
• Packaging products
• Getting products to customers

Understanding Inventory Categories

Inventory consists of all raw materials, components, completed or partially completed products, and pieces of equipment a firm uses. Key categories include:

• Finished-goods inventory: Products ready for sale.
• Work-in-process inventory: Products partly completed.
• Raw materials inventory: All materials purchased to be used as inputs for making other products.

The Costs of Holding Inventory

Why does inventory cost money? Several factors contribute to the expense of maintaining stock:

• Cost of (stuck) capital
• Obsolescence
• Storage
• Insurance
• Security
• Theft (Shrinkage)

Inventory Control and Management Strategies

Inventory control is the process of determining how many supplies and goods are needed. It involves keeping track of quantities on hand, where each item is, and who is responsible for it. Different types of inventory call for different approaches to inventory control:

• Safety inventory
• Cycle inventory
• Seasonal inventory
• Speculative inventory
• In-process/Pipeline inventory
• Marketing/Shelf inventory (retailing)

Just-in-Time (JIT) Inventory Systems

Just-in-Time Inventory is a technique using smaller quantities of materials that arrive just in time for use in the transformation process. This approach requires less storage space and reduces other inventory management expenses.

Quality Management and Control Systems

Quality is defined as the match between products and consumers’ needs and requirements.

• Quality control: The processes an organization uses to maintain its established quality standards.
• Statistical Process Control (SPC): A system in which management collects and analyzes information about the production process to pinpoint quality problems in the production system.
• Total Quality Management (TQM): A philosophy stating that a uniform commitment to quality in all areas of an organization will promote a culture that meets customers’ perceptions of quality.

TQM requires