4.2 Inventory management

Inventory includes raw materials, work in progress and finished goods. Holding stock protects continuity and service, but ties up finance, needs storage and risks damage or obsolescence.

Reorder level, buffer stock, lead time and demand uncertainty determine how much protection is sensible. Better forecasting and supplier reliability can reduce the need for excess stock.

A hospital may hold critical supplies despite cost, while a fresh-food retailer limits inventory because spoilage makes overstock especially expensive.

Zero inventory is not zero risk; stockouts can stop production or lose customers.

Just in Time aims to receive inputs shortly before they are needed and produce to demand. It can reduce storage and tied-up finance but depends on reliable suppliers, quality and accurate scheduling.

JIT exposes problems that buffer stock would hide. A disruption, defect or demand surprise can therefore stop the process quickly.

A manufacturer may use small, frequent deliveries with trusted suppliers; a port delay can halt production if no contingency exists.

JIT is not simply “hold no stock”, and it is unsuitable when lead times or supply reliability make continuity more important.