The first step in understanding inventory is to define how it is managed. In this video, Steven provides common definitions for inventory and inventory management. He further explains the three skills needed to manage inventory—planning, coordinating, and controlling—and the two key decisions every inventory manager makes.
- Mildred Ritter once observed that the happiest people are the ones who have enough but not too much. You see, you might be really happy to have something, but you also have the burden of having to take care of it. Having unnecessary stuff means having unnecessary burdens which does not lead to happiness and that makes sense to me. When you apply this thought at work, you'll see that it makes sense to your company as well. For your company, stuff means inventory and the key to happiness is having enough inventory but not too much.
The most common definition of inventory is any company asset that is held for future use or for a future sale. You may hold on to the finished product or just the materials, parts, and components that makeup the finished product. All of this is considered inventory and that's what inventory management is all about. Planning, coordinating, and controlling every aspect of your inventory. Buying it, moving it, storing it, and selling it no matter where in the world it is.
To be a good inventory manager, you need to have strong skills in these three distinct areas. First, you must be a good planner and that job is even harder in companies that operate globally as so many companies do today. Materials, parts, and components are purchased from all around the world and the product itself is made in many different factories across the globe. Having the right inventory in the right place at the right time involves some very complex global partnerships and some very strong management skills.
You really must have a good plan to make that happen. Second, you also must be a good coordinator to manage inventory effectively because everyone is involved in your inventory. The purchasing department buys everything you need. The operations people turn it into a final product and transportation services move everything to the right place in a timely manner. Materials to the factory and products to the customer. You must work directly with all these departments and people.
And third, you must be a good controller. Your job is to maintain the right amount of inventory that allows you to satisfy your customer as much as possible, but also to reduce cost as much as possible. These two objectives often conflict with each other. Satisfying the customer might require you to hold on to extra inventory especially the finished product just in case you need it. You don't wanna miss a sale because you don't have the inventory available. Keeping costs down can be accomplished by reducing your inventory because inventory is an investment just like machines in a factory.
You not only spent money purchasing the materials, parts, and components, you have to spend money to store and manage all that material. When managing inventory, you are faced with two basic but important decisions. First, you must decide when to make the product and along with that when to order the needed materials, parts, and components. This is where your planning and coordinating skills are essential. And second, you must also decide how much to make or order. This is where you apply your controlling skills.
The key to managing inventory is finding the right balance by making these two decisions appropriately. As Mildred said, make sure you have enough but not too much. To successfully manage your inventory at any level within the company, that's where you must focus, finding the right balance.
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