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Inventory Control

delivery possible within in one day in many cases. Com-
petition is driving the price of most products down to
minimum profit levels. Inventories are managed for min-
imum stocking levels and maximum turnover. In the
twenty-first century, high inventory is a sign of either mis-
management or a troubled economy. It is expensive and
wasteful to hold and maintain high inventory levels.
Proper utilization of space is also a critical component in
today’s business world, whether one is a retailer, whole-
saler, or a manufacturer.
Modern retailers and manufacturers are equipped
with an array of tools and support mechanisms to enable
them to manage inventory. Technology is used in almost
every area of inventory management to help control,
monitor, and analyze inventory. Computers, especially,
play an enormous role in modern inventory management.

INVENTORY MANAGEMENT
SYSTEMS
Ongoing analyses of both inventory management and
manufacturing processes have led to innovative manage-
ment systems, such as just-in-time inventory or the eco-
nomic-order quantity decision model.
Just-in-time inventory is a process developed by the
Japanese based on a process invented by Henry Ford.
David Wren (1999) describes how the process started:
A properly organized warehouse aids in inventory control. ©
BENJAMIN RONDEL/CORBIS
Henry Ford managed to cut his inventory by forty
million dollars by changing how he obtained
materials to produce automobiles. Through a
they had to suffer some inconvenience to find an alternate process called vertical integration, Ford purchased
source because of the monopolies that existed. This made mines and smelting operations to better control
it easier for businesses to market their products and the source and supply of material to produce cars.
allowed them to maintain large stocks if they had the cap- In this way, he was able to reduce his standing
ital to do so. inventory and increase turnover. In the 1950’s,
Inventory management was a concern then, as it is in Taiichi Ohno, a mechanical engineer working for
the early twenty-first century. Inventories had to be mon- Toyota Motorcar Company, refined this process
itored for accuracy and quality. They had to be protected into what we know today as Just-in-Time inven-
tory (p. 1).
from the elements, from theft, from spoiling, and from
changes in the local economy. Tax laws could have an Just-in-time inventory usually requires a dominant
enormous impact on inventory levels. face—a major partner that has the resources to start the
process and keep it organized and controlled—that organ-
THE EARLY TWENTY-FIRST izes the flow and communication so that all the parties in
CENTURY the supply process know exactly how many parts are needed
The business world of the early twenty-first century shares to complete a cycle and how much time is needed in
few similarities with that of earlier times. Communication between cycles. By having and sharing this information,
is quick, easy, reliable, and available through a host of companies are able to deliver just the right amount of prod-
media. Supply is certain and regular in most environ- uct or inventory at a given time. This requires a close work-
ments of merchandising and manufacturing. Tax laws are ing relationship between all the parties involved and greatly
generally consistent and reliable. However, market minimizes the amount of standing or idle inventory.
changes can be abrupt and difficult to forecast. Global In the economic-order quantity decision model, an
competition exists everywhere for almost everything. analysis is made to determine the optimum quantity of
Products are available from anywhere in the world, with product needed to minimize total manufacturing or pro-

436 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION