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Inventory Management Essay


There are many issues associated with the management of the parts’ inventory. To effectively determine the best strategy for dealing with the identified inventory management issues, it is best to start with the classification of the inventory based on the 80/20 rule, also known as the ABC method. The ABC method categorizes inventory into three clusters based on the dollar value of the annual usage of the inventory. The top 10% forms the A cluster, which means it is the most valuable inventory. The last 10% carries the least value in dollar value; hence, does not have as high a risk as the top 10% or the 80% bulk in category B. Category B comprises many small parts. Such factors are important when considering the best strategies to use for inventory management.

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There are a total of twenty parts in the inventory. Using the price data and the annual usage data, we determined the annual dollar usage value of all the parts. The resulting output was sorted from the largest value to the lowest value. The part with the highest value was found to be part 1242 with a price of $17.20 and an annual dollar value of $34,400. Part 1242 takes 15% of the total value of inventory hence being categorized as the most important inventory by value. There are 11 parts in category B and 8 parts in category C. The inventory value for parts in category B take 74% of the inventory value. For category C, the inventory value is about 11% of the total inventory value. The categorization of the inventory is as shown in the table

The categorization of the inventory using ABC helps in identification of the inventories based on value. This approach eliminates the misconceptions about inventory. For instance, part 1236 had been identified as a high value part but in the classification, it falls into the bulk of the inventory items. Therefore, the first lesson is that the value of the total inventory used should be adopted in categorizing the inventory instead of using the price. The value should also be used to guide the inventory management mechanisms.

Part 1242 is the most valuable given the its value. The inventory handling mechanisms should ensure that there are no outages and that the inventory carrying costs are held to a minimum. However, the organization would be forced to go the extra mile in accumulating the inventory for shipping.

Part 1236 is in the top 74% of the inventory. Consequently, the management of the inventory should follow that inventories should not be held for an entire year. Instead, the it should be held only for one cycle. The inventory levels should also be varied in anticipation of the cyclical changes in the demand for the inventory. Inventory management strategies for 1236 should not be the same as those for part 1242.

Part 1241 falls at the bottom of the chain in the ABC categorization. The organization should source a new supplier for this part in order to deal with the outages and the long lead times. With part 1246 being produced in-house, the inventory management strategy should be just-in-time and quality must be guaranteed by the production department. A lot of attention should be directed to the quality management processes in order to ensure quality.

For part 1253, focus must be directed towards quality as well as the inventory carrying costs. There is the need to ensure that sourcing for part 1253 is data driven. The deterioration in quality must have resulted from carrying excess inventory and using poor management in dispatching the inventories.

Overall, the inventory management practices must ensure attention to the value of the inventory, the carrying costs of the inventory, and quality of the inventory as some of the most important features in the inventory management strategies. The 80/20 rule used herein should be used as a guide in classifying the inventory.

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