Operation Management - Inventory - Essay Example

The top-level management formulates the strategy and modifies it over time, while the other department officers make tactical decisions to assist in executing the strategy. The term “waste” can be defined as anything used in production process other than the minimum amount of time, materials, tools, people, equipments, and space required to add value to the product or service (Focusing on the waste, 2006).Inventory is commonly regarded as one of the seven wastes of lean manufacturing. Inventory can be piled up at various stages of the production process such as, raw materials, work-in-progress, and finished goods as stock.

Organizations often maintain much higher levels of inventory that what is required for the production of goods and services. On the other hand, the customers choose the Just-in-time (JIT) principle to purchase goods and services to fulfill their wants. Every piece of inventory held by the organization has a physical cost connected with it, which must be bore directly by the organization either from the cash balance or from borrowings that carries a rate of interest with it. The essential factor to be remembered in the business operation is that “cash is king”, and if too many things such as, inventory are tied up with the cash, it may not be available to the organization to use it in elsewhere in its business.

Apart from the physical costs, the inventory also has some secondary or less obvious costs. Such costs include cost transportation and movement of inventory from place to another, cost of stores needed to hoard it, cost of containers to preserve it, cost of management for keeping track of it, cost of damage and losses occurring while transportation, cost of writing off materials in case became outdated, and also cost of insuring the inventory. Thus, there are many costs connected with inventory; some of them are more obvious while others are not as evident as others.

These costs directly affect the profitability cutting down the profit margin. They cause increasing the organizations’ lead times as well its operating costs, which ultimately results in customer dissatisfaction that provokes them to take their business elsewhere. The essential factor that results in excess production is a mistrust of the organization’s suppliers, production process and even customers. Such suspicions causes the organization to always maintain a “comfort stock” to enhance a satisfactory buffering if the operations are not going in line with its plans; in fact, the plan often seems failing.

When a comfortable stock is in effect, it provides a buffering against such problems that occur in the business, so that the problems fail to impact the operations that they would otherwise. These circumstances force the managers to ignore such issues associated with inventory considering them to be a matter of unimportance. However, these are all costing the organization money. For instance, the level of inventory can be exemplified as the sea; if the organization drops the level then it starts to expose the rocks below and have to take actions either to remove them or to reduce their size in order to continue a smooth sail on for the ship of production without getting sunk (Leanman, 2011).

As Martin points out, the most