• Introduce the different types of inventories that can exist in an organization and provide a rationale for why companies maintain inventories.
• Identify the various costs associated with carrying and maintaining inventories.
• Define the classical inventory models and the conditions necessary for them to be applicable.
• Show how the economic order quantity IS calculated for each of the different inventory models.
• Present some of the current inventory management trends and issues that exist in companies today.
The senior executives of Alpha Numerics were having their annual retreat to review accomplishments of the past year and to discuss major policy issues for the coming year.· As was the norm, the retreat was held at a small hotel in the mountains of eastern Pennsylvania, well removed from the company's actual manufacturing facility. The first day's meeting had gone well, but in the early evening, after dinner, the subject of inventory control and the number of shortages that had occurred over the past year came up for discussion. The vice president of engineering suggested that, as <;I solution to the shortage 'problem, purchasing should order all of the projected material. requirements at the beginning of the year.
The vice president of manufacturing was so taken back by this suggestion that, to the amazement of the others in the room, he leaped .onto the conference table and shouted out, "Inventory is evil!" He turned to the president and said, "If we were to follow this suggestion, Mr. President, do you have an extra 25,000 square feet of warehouse space where we can store the material?" The president shook his head no. "And do you, Mr. Vice President of Race, have an extra $5 million to buy all this material?" The VP of finance similarly shook his head. "And are you, Mr. Vice President of Marketing, going to provide me with a perfect forecast of the products we expect to sell for the next year?" The VP of marketing said, "No, of course not. That would be impossible." And turning to the VP of engineering who had made he initial proposal, he said, "And you'll keep the same designs in the coming year without making any
changes, won't you?" The VP of engineering said, "That would be very unrealistic." All of the individuals in the room then looked up to the VP of manufacturing still standing on the conference table and said, "We see what you mean. Inventory is indeed evil!"