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Inventories are materials stored, waiting for processing, or
experiencing processing. They are ubiquitous in modern business.
Observation of almost any company balance sheet reveals that
a very significant part of its assets comprise inventories of
raw materials, products within the production process, or finished
products. Most managers don't like inventories, because they
are like money placed in a drawer, assets tied up in investments
that are not earning money. They also incur costs for the care
of the stored material and are subject to spoilage and obsolescence.
The goal of programs such as "just-in-time" manufacturing
is to reduce inventory levels.
In spite of all these bad features, inventories do have positive
purposes. Raw material inventories provide a stable source of
the materials required for production. A large inventory requires
fewer replenishments and may reduce ordering costs because of
economies of scale. In-process inventories reduce the impacts
of the variability of the production rates in a plant and protect
against failures in the processes. Final goods inventories provide
for better customer service. The variety and easy availability
of the product is an important marketing consideration. There
are other kinds of inventories, including spare parts inventories
for maintenance and excess capacity built into facilities to
take advantage of the economies of scale of construction.
Because of their practical and economic importance, the subject
of inventory control is a major consideration in many situations.
Questions must be constantly answered as to when and how much
raw material should be ordered, when a production order should
be released to the plant, what level of safety stock should
be maintained at a retail outlet, or how in-process inventory
is to be maintained in a production process. These questions
are amenable to quantitative analysis through the subject of
inventory theory.
This section describes the mathematical theory associated with
inventory control. This theory is implemented in the Inventory
add-in.
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