Operations management - All about inventory management: meaning, classification, order and reorder models.

Effective inventory management is important for most businesses' successful operations and supply chains. This is because inventory management impacts operations, marketing, and finance. Poor inventory management hampers operations, diminishes customer satisfaction, and increases operating costs. Here we will discuss the meaning of inventory, and recognize its importance, kinds, cost, and classification system. The A-B-C classification system is illustrated by a solved example. Moreover, you will learn the inventory ordering policies. Inventory ordering policies address the two basic issues of inventory management: how much to order and when to order. A number of models are described that are used for these issues. Inventory that is intended to meet expected demand is known as cycle stock, while inventory that is held to reduce the probability of experiencing a stock out (i.e., running out of stock) due to demand and/or lead time variability is known as safety stock. The discussion begins with the issue of how much to order. The question of how much to order can be determined using an economic order quantity (or EOQ) model. E O Q models identify the optimal order quantity by minimizing the sum of certain annual costs that vary with order size and order frequency. Three order size models are described here: The basic economic order quantity model. The economic production quantity model. The quantity discount model. The second issue, when to order, is addressed after that. Where different models were explained to find the reorder point (ROP) for different situations