Business AS · Operations management. The idea in plain words, the rules to remember, the mistake to avoid and a worked example, written and checked by Mega Lecture.
Inventory is the stock a business holds: raw materials, work in progress (part-finished goods) and finished products. Holding it lets production continue and customers be served without delay. It also costs money: storage, insurance, damage, goods going out of date, and cash tied up that could be used elsewhere.
An inventory control chart shows inventory falling as it is used and jumping up when a delivery arrives. The firm orders when inventory reaches the re-order level. The delivery arrives after the lead time, ideally just as inventory reaches the buffer inventory, the minimum kept for safety.
Just in Case (JIC) holds high inventory to be safe. Just in Time (JIT) holds almost none and relies on frequent, reliable deliveries.
Students forget to add the buffer when they work out the re-order level. Usage during the lead time alone would leave inventory at zero, not at the buffer, when the delivery arrives.
Answer: Re-order level 540 units; maximum inventory 1,140 units.
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