Operations Management Reading: Managing Inventory

By: Janice H. Hammond

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Synopsis: Inventory strategy can be a key driver of a firm's success or failure. Conversely, an inappropriate inventory strategy can erode customer service and can quickly deplete cash, especially for startups or other cash-starved firms. Because of the important strategic and tactical roles played by inventory within a business, it is important to understand the fundamentals of inventory management. This Reading begins by defining key terms and concepts. It then explores how to determine an inventory model that is appropriate to each business situation. Determining a model depends on finding answers to a pair of related questions: Can inventory be replenished within a defined selling period? If it can, a new question arises: What is the replenishment trigger? A "single-period model" applies to products with a limited useful life that cannot be carried over for sale in a subsequent period and a "multi-period model" applies to products that can be carried over for sale in a subsequent period.