Inventory management is a form of cash management. Therefore, maintaining it properly is mandatory, from studying inventory cost up to controlling it.
Critical Issues Facing Inventory:
- Inventory is one of the seven wastes of lean
- As much as 60% of total assets of a company can be tied up in inventory, and same cannot be converted to cash until the inventories are sold and the receivables are collected.
- Warehouse spaces cost staggering amount of money and are limited.
- Storage costs can end up being more than the savings realized by buying in larger quantities.
- Products that hit expiration date need to be removed/discarded in some form.
- Determining the optimal inventory level can be extremely challenging due to the bullwhip effect, globalization, and changing customer needs.