inventory control

How can a business reach an acceptable compromise between having too little and too much inventory?

There are trade-offs between simple solutions to inventory control and more complex solutions. The simple solutions (such as ABC or EOQ) will not balance availability and cost control for the large variety of inventory items that many companies have. The more complex solutions (MRP and JIT) can be costly and still may not be optimal. The ABC system is a simple classification of inventory items into three groups (A is most critical and C least critical). The bulk of control efforts go to the A items. The EOQ (economic order quantity) is a mathematical formula that can be applied to each separate item to determine at what level of stock the item should be reordered. MRP (materials requirement planning) and JIT (just in time) systems require sophisticated information systems to support inventory management. Generally, the fewer resources available, the simpler the system. Whatever the system, accurate estimation of costs associated with inventory is critical to success.

Phyllis G. Holland, PhD, Professor and Head, Department of Management, Langdale College of Business, Valdosta State University, Valdosta, GA