Inventory Management

If the market demand exceeds the rate of production, the operations managers have to strategize to increase production to match the market demand. To some production firms, this means stretching of the existing resources or engagement of new resources. The production team will be required to work for extra hours to ensure production of enough goods. If the production capacity does not meet the market demand, the operations manager can opt to start up a new production plant. This is a long-term plan that is to be induced if the current changes in the production rate do not meet the market demand. Another way of handling underproduction is subcontracting production to another production plant.

In the case where the production rate is above the market demand, the operations manager must cut down the rate of production. This can be realized by sticking to the production schedule; that is, reducing overproduction by avoiding producing goods too early and accumulation of inventory. Another way of reducing production during low market demand is engaging batch and order production. This means production is done onlyafter placement of an order by the customers.

To minimize inventory costs, shortage costs must be eliminated. The stock holding costs must also be controlledby holding optimal quantity of inventory and reducing the stock holding time. The purchasing costs can also be minimized through sourcing for cheap inventory. Inventory control can also optimize the distribution costs through engaging an effective supply chain.

The just-in-time inventory system allows companies to minimize their inventory overhead costs by cutting down the storage and warehouse costs. They can avoid wastes and damages that occur during storage. It also reduces the costs associated with handling inventory; that is the costs incurred in paying staff salaries.