Objective of inventory control

Answer 1

In a retail business (such as automotive sales) the objective of inventory control is to have a minumum of one of every item in stock at all times. The objective of good inventory control is to ensure that the minimum stock inventory required to meet customer demands is available at all times. Excess stock needs to be minimised as this stock is usually held under finance and must be stored.

Some staff will fail to keep food in the pie warmer arguing that they are unlikely to sell it and therefore seek no to waste any product. When you consider that in order to make a sale from any retail product it must be sold and therefore must be available then the retailer will actually lose more by not having the pie warmer stocked - especially when you consider that the costs of wages, stock holdings, light and power, rent, depreciation, opporunity cost of funds and so on will still be present whether or not there is a pie in the pie warmer or an automobile available to test drive.

I am a car enthusiast with money to spend. If the version of the car that I am considering buying is not available to test drive then I WILL NOT buy it regardless of the deal I am offered - even though I am prepared to wait for some time for the vehicle to be delivered. The retailer will unltimately not save money by having too little inventory

Answer 2

Twofold:
(1) Maximize customer service
(2) Minimize costs

1. Cost Objective: Minimize sum of relevant costs
2. Service Objective: desired customer service levels significantly impact inventory levels.
Service level may be defined in a number of ways, such as:

Inventory Control Models
Remember: two important issues in inventory control:
order quantity and order timing.
Two general classes of models: continuous review (fixed order quantity) and periodic review (fixed order period).

1. Continuous Review or Fixed Order Quantity Systems (Q-systems)
a. Multi period models

(1) Fixed order quantity, variable time between orders (EOQ, EPQ, and Quantity Discount)
(2) On-hand inventory balance serves as order trigger (R)
(3) Perpetual inventory count
(4) 2-bin system

b. Single period Model

2. Periodic Review or Fixed Order Period Systems (P-systems)
a. Variable order quantity, fixed time between orders
b. Time serves as order trigger
c. Periodic count
d. Process: When a predetermined amount of time has elapsed, a physical inventory count is taken. Based upon the number of units in stock at that time, OH, and a target inventory of TI units, an order is placed for Q = (TI-OH) units.

Fixed Order Quantity Systems (Q-systems):
How Much to Order (Q) and When to Order (R)
1. Multi Period Inventory Models: Order decisions for infinite length inventory planning address how much to order
a. How Much To Order: Basic Model - the Economic Order Quantity (EOQ or Q-System)