To protect against stock outs delayed deliveries and

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can greatly decrease the need for the inventory buffers decoupling operations. To protect against stock-outs. Delayed deliveries and unexpected increases in demand increase the risk of shortages. Delay can occur because of weather conditions, traffic congestion, supplier stock-outs, deliveries of wrong materials, quality problems, and so on. The risk of shortage can be reduced by holding safety or buffer stock, which are stocks in excess of average demand to compensate for variability in demand and lead time. Lead time is the time elapsed between the placement of order and its delivery. To take advantage of order cycles. Inventory storage enables a firm to buy and produce in economic lot size in order to minimize purchasing and inventory costs without having to try to match purchase or production with demand requirements in the short run. This results in periodic orders, or order cycles. The resulting stock is known as cycle stock. In some cases, it is also practical or economical to group orders and/or to order at fixed intervals. To hedge against price increases or to take advantage of quantity discounts. Materials purchased in larger quantities may be cheaper due to discounts and lower transport cost. Paper work and inspection of incoming goods are often simplified when larger quantities are ordered. However, the downside to this is that a huge sum of money is tied up in dormant goods, more space is occupied, more material handling cost is involved, and losses due to deterioration and obsolescence can occur [Samuel Eilon]. To ensure against scarcity of materials and permit operations. Work-in- process and pipeline inventories allow the smooth operations throughout a production-distribution system. 14.3.4 REQUIREMENTS FOR EFFECTIVE INVENTORY MANAGEMENT These requirements are: A system to keep track of the inventory on hand and on order. That is to find out how much we have, and how much we should have based on stock-level fluctuations, rate of demands, etc. Then take steps to close the gap between the two. A reliable forecast of demand that includes an indication of possible forecast error. Knowledge of lead times and lead time variability. Reasonable estimates of inventory holding costs, ordering costs, and shortage costs. A classification system for inventory items. To answer these issues, we will discuss some common stock control systems in the subsequent sections.
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188 14.3.5 INVENTORY COUNTING SYSTEMS Inventory counting systems can be periodic or perpetual. Under a periodic inventory system, a physical count of items in inventory is made at periodic intervals (e.g., weekly, monthly) in order to decide how much to order for each item. Examples are small retailers. This system allows placing orders for many items at the same time. However, there is a lack of control between reviews and there is a need to protect against shortage between review periods by carrying extra stock.
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