Independent Demand Inventory

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Chapter 6: Independent Demand Inventory

This chapter emphasized the importance of inventory in an organization. Inventory is defined as the physical stock of any item or resources used in an organization. The policies and procedures that monitor levels of inventory and determine when to place an order make up the inventory management system. I have learned that the objective of an inventory system is to specify (1) when items should be ordered, and (2) what quantity of each item should be ordered. These two decisions need to be made both for manufacturing and for services.

I have also come to know the reasons why organizations should carry more inventory: it is for setup and ordering cost, improve customer service and variation in demand, increase labor and equipment utilization, reduce transportation cost, and gain quantity discounts. There are reasons why they should carry less inventories as well: to reduce storage and handling, reduce interest and opportunity cost, reduce property taxes and insurance premiums, and reduce shrinkage/spoilage.

Another thing that I have learned is that inventory has several basic types: cycle, safety stock, anticipation, pipeline, work-in-process, and remanufactured/reconditioned. Each type has important conceptual differences and serves a distinct purpose in the supply chain. I understood that these types is important for clearly gasping inventory theory and for identifying methods for reducing inventory and improving performance.

I have also gained knowledge about the independent and dependent demand. Independent demand is for items that are considered end items that go directly to a customer, and for which demand is influenced by market conditions and not related to inventory decisions for any other item. In contrast, dependent demand is demand for items that are used to make another item or are considered to be component parts.

It is vitally important for an organization to have an inventory systems...