1-9.4 Inventory Management

A particular inventory type will be selected based on the particular need. Examples of inventory types include:

• Insurance items — inventory stockpiled in anticipation of future demand, such as internal and external factors like seasonality or economic conditions; also covers end-of-life requirements when a manufacturer or industry will no longer be producing the product.
• Safety stock — fluctuation inventory that covers unpredictable fluctuations in demand or lead time.
• Economic order quantities — lot-size inventory created when purchases are greater than needed; takes advantage of quantity discounts, reduced shipping costs, and opportunities to make purchases at the same rate as usage.
• Other examples — transportation; hedging; and maintenance, repair, and overhaul inventories.

Operational availability requirements, maintenance concepts, demand patterns (location, quantity, and frequency), and distribution options will determine how inventory is positioned. Secondary considerations for positioning include type of good stored, any special handling requirements, and the cost of the product.