Inventory Management – Types and Characteristics

Inventory Management

Inventory management is the process of efficiently overseeing the constant flow of units into and out of an existing inventory. This process usually involves controlling the transfer in of units in order to prevent the inventory from becoming too high, or dwindling to levels that could put the operation of the company into jeopardy. Competent inventory management also seeks to control the costs associated with the inventory, both from the perspective of the total value of the goods included and the tax burden generated by the cumulative value of the inventory.

Type of Inventory

Independent Demand: In independent demand, the demands for various items are unrelated to each other. To determine the quantities of independent items that must be produced fi rms usually turn to their sales and market research departments. They use a variety of techniques, including customer surveys, forecasting techniques, and economic and sociological trends.

Dependent demand: In dependent demand, the need for any one item is a direct result of the need for some other item, usually a higher-level item of which it is part. Dependent demand is a relatively straightforward computational problem. Needed quantities of a dependent-demand item are simply computed, based on the number needed in each higher-level item in which it is used