Theories Of Inventory Management

As can be seen already, inventory management is part of a supply chain of a company and as Stevens (1989) indicates, it is the process that all manufacturing companies regardless of size, type of product or manufacturing process follow in order to fulfill the need to control the flow of material from suppliers, through manufacturing and distribution to the customer. Stock and Lambert (2001) stated that inventory management is a term to describe which are the primary responsibilities of inventory managers; to decide how much to order and when the order has to be placed. According to Reid & Sanders (2007), the objectives of inventory management are to provide the desired level of customer service, to allow cost-efficient operations, and to minimize

Due to external factors, such as demand fluctuation, economic uncertainties etc., this process was often inappropriate and forced companies to lose business because of stock deficits. Beamon (1999) argues that the supply chains rely primarily on the reduction of cost, but do not consider the effects of uncertainty. Some years later, Chopra & Meindl (2007) stated that excess inventories were the reason why each location managed its inventories independently, ignoring inventories at other facilities, resulting to poor service levels. Inventory, was and always will be a difficult process to remain efficient as uncertainties are still one of the main problems. During the last 40 years many theories and processes were advanced in inventory management but the existence of uncertainties in the supply chain is one of the reasons why most, if not all, stakeholders within the supply chain maintain inventories. Reid & Sanders (2007) extended this view by analyzing the reasons why companies maintain stock; time, seasonal demand, uncertainty, economies of scale and appreciation in value. Waller et.al (1999) also argued that demand uncertainties are the most important reason why a firm has to maintain inventories.

2.1.4 Why companies maintain inventories: Positives and negatives on keeping inventories

In the following part I am going to present the reasons why companies maintain inventories. Such strategy

For this reason, safety inventory emerged, in order to satisfy demand that exceeds the forecasted amount for a given period as Chopra & Meindl (2007) indicated. Safety stock is kept when demand is uncertain and a shortage is likely to emerge as a result of increased demand requested by the market in contrast to the forecasted demand. According to Gallear et al (2012), “uncertainty is a key factor to influence performance and an important measure of the operating environment”.

The necessity to keep inventory low is stated in almost all authors who researched inventory management related topics. Specifically, Lambert and Cooper (2000) argue that when the wrong mix of products is produced, then this results in unneeded inventories, excessive inventory carrying costs, mark downs, and transshipments of product.

All the above indicate that stock is indispensable in the system of a company and the aim is not to keep disproportionate amount of inventory. Davis (1993) states that as long as it is less expensive to have unfinished or semi-finished goods in inventory than finished goods, then a mix of semi-finished and final goods can be maintained in order to keep up with uncertainties but also manage to minimize costs. Respectively, the location where the products are held and in which quantities they are held differ from organization to