Functions, Roles and Types of Inventory in Operations Management

This report discusses the functions, roles and types of inventory in operations management and their implications on the OM strategy. It also explores the theories and concepts used to assess the efficiency of inventory management in an organization. Additionally, it highlights the supply chain systems, stakeholders and their influence on the OM process. Recommendations are provided for improving inventory and supply chain systems.

OPERATIONS
MANAGEMENT

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Contents
Introduction................................................................................................................................1
Functions, roles and types of inventory.....................................................................................1
Types of Inventories...............................................................................................................1
Functions of Inventory...........................................................................................................2
Implications on OM strategy..................................................................................................2
Theories and concepts to assess the efficiency of the inventory management in the
organisation................................................................................................................................3
Supply chain systems, stakeholders and its influence on OM process......................................5
Recommendation........................................................................................................................6
Conclusion..................................................................................................................................6
REFERENCES...........................................................................................................................6

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Introduction
In the modern day business, managing demand and supply becomes extremely essential. This
management largely depends on the way in which inventory is managed in the organisation
and the quality of their supply chain management. These two factors have a great impact on
the operations management strategy. It is crucial that every firm analyses the efficiency of the
inventory management within the firm (Yu, Wang, Zhong & Huang, 2016). Amazon is one of
the leaders in the e-commerce market and in the cloud computing services. This company
was founded back in the 1994 with as an online book seller and now it is known as
everything store. This firm owns a publishing arm named Amazon publishing and now it also
produces films and TV, consumer electronics, echo devices, Fire tablets, Fire TVs and it is
also the largest provider of the cloud infrastructure services through AWS subsidiary. It is the
largest Internet firm by revenue all across the globe.
This report highlights the functions, roles and types of inventory in the inventory mix as well
as its implications on the Operational Management strategy. It also discusses inventory
management of Amazon. In the latter part supply chain system is explained along with its
influence on the OM process. At last, recommendations have been provided about the
organisation.
Functions, roles and types of inventory
In the inventory mix, there are different types of inventories available. These inventories help
the company in managing different types of operations, products and services. They have
different roles to play and it depends on the type of inventory it is.
Types of Inventories
 Production Inventory: It consists of items goods that are going into final product like
components, raw materials and the assembling part from other sources.
 Work in process inventory: It consists of products at semi-finished stage or the
products that are needed at different stages of manufacturing (Hugos, 2018).
 Finished goods inventory: It consists of finished good ready to dispatch to consumers
or distributors.
 Maintenance and operating inventory: It consists of items that do not form the portion
of final products but are either consumed or utilised at the time of manufacturing
process or items required for maintenance and repair functions (Christopher, 2016).

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 Miscellaneous Inventory: The products or goods other than what is mentioned in the
above part come under this. Stationery items of the office as well as other items
needed by sales department.
Functions of Inventory
 Inventory act as cushion: Since large fluctuations can be noticed in the demand and
supply and manufacturing unit cannot be able to become so much flexible hence to
deal with this unpredictable behaviour there is a requirement of inventory so as to
store the products and hence companies can use it in the time of need (Stevens &
Johnson, 2016).
 Inventory gives production economies: Desired amount of purchase cancels out the
impact of change in supply or prices. Inventory helps in bringing economy so
purchasing can be done on discounted rates when purchased in bulk.
 Managing of efficient and smooth production flow: It allows efficient and smooth
production flow which allows continuity in operations.
It also ensures that raw materials are available whenever the company requires it for doing
productions. This helps the company to complete the production process in time (Wisner, Tan
& Leong, 2014).
Implications on OM strategy
Inventory and inventory management has a long term impact on the operations management
strategies. It reduces the burden on the supply chain management and companies also make
supply chain management strategies such as scheduling and listing hence helps in optimising
the supply chain. It also helps in production strategies such as when to invest on the
production features. It improves the production strategy in such a manner that it allows a firm
to look at stocking the products rather than depending too much on the production capacity
(Blanchard, 2010). It allows a company to divert their production strategy towards lean
manufacturing which has a direct impact on the waste management and reduction in the cost
of production.
Good inventory also has implications on the quality management. This is because the better
the inventory infrastructure within the organisation, the better is the chance that higher
quality products can be delivered to the consumers (Chaturvedi, Martich, Ruwadi & Ulker,
2013). Inventory also has implications on the resource management which is a crucial part in
the operations management. Good inventory also has impact on the sustainability of the

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company as products in different stages of product cycle can be stored in the firm for longer
period of time and appropriately.
OM strategies such as customer satisfaction strategies are helpful for the company. Inventory
helps in managing the business process and also allows the company to provide products on
time to the customers. In the companies such as Amazon where they have to face excessive
fluctuation in the product demand, it is crucial that they have an inventory management
system that is capable of delivering all the products on time (Ross, 2016).
Theories and concepts to assess the efficiency of the inventory management in the
organisation
It is crucial that every firm analyses its inventory so as to find that how much efficient it is.
The more the efficiency of the inventory, more is the chance that company achieves success
in its overall operations. It is also going to have impact on lifetime of the resources and the
product company possess. For a company, it is crucial that they regularly upgrade their
inventory so as to make it more efficient. There are different theories and concepts being used
by the companies to evaluate the efficiency of the Inventory they have. Some of them are:
Inventory Turnover Ratio: This concept measures an ability of the firm to manage its
efficiency of inventory and gives insight into firm’s sales. The ratio measures the number of
times the total average inventory has been sold over duration of period. This ratio is used for
finding out that whether there are enough sales being produced to make use of inventory. It is
calculated by dividing the good’s cost sold by the average inventory and hence shows the
better way in which inventory is being managed including whether too much or not sufficient
inventory is being bought. There has been continuous growth in the inventory ratio of the
company. Right now the ratio of the Amazon is around 9.4X (Finbox.com, 2019).

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Just in time: The efficiency of the inventory depends on the lesser amount waste the
inventory generates while receiving goods. This concept also suggests that the lesser the cost
of inventory management, the better the inventory is understood to be. Due to this a company
is able to forecast the demand accurately. If the inventory is capable of holding sufficient
inventories to have enough product to absorb maximum demand in the market then the
inventory is understood to be efficient. Amazon also utilises this method for improving the
standards of their inventory. This is the major reason why this company is able to enhance
their market base while ensuring that all their resources are properly utilised (Crandall,
Crandall & Chen, 2011). Since Amazon believes in the fast delivery of the products hence
inventory management with the help of Just in Time becomes very much important for the
company.
Longer lifetime of the resources: It is seen that larger numbers of resources are available
with the firm and it is crucial that they must be able to use it for the longer period of time.
The longer the lifetime of the resources the better the inventories are. It is also helps in
maintaining the quality of the resources. For a company, that is dealing in the operations at
the world level this is the most crucial aspect they have to deal with (Sunhotest, 2018).
Larger Size: It is stated often that bigger the better, the warehouses of the companies need to
be bigger in today’s time so that they can accommodate larger numbers of products. Larger
size of inventory also allows the company to manage the efficiency of the inventory
management process as it allows the company to stock in more quantity which is necessary
for managing the operations at per the need in the market. Larger inventories also reduce the

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cost of storage as the requirements in the area can be managed through this large inventory
only.
It is found that Amazon has been significantly able to improve their inventory. This has
helped them in reducing the cost of operations and ultimately has helped them in reducing the
price of their cost. This is the major reason why they are able to manage their fast supply
chain management and the speed of delivery (Kozlenkova, Hult, Lund, Mena & Kekec,
2015). It has allowed them to control the situations when the demands are higher and lower.
Supply chain systems, stakeholders and its influence on OM process
Supply chain system consists of activities, information, people, organisations and resource
included in displacing a service or product from suppliers to consumers. The activities in the
supply chain includes the conversion of raw materials, components and other natural
resources in a finished product which gets delivered to consumers at the end. There are
different types of supply chain systems that are used by the companies depending on their
requirements. These days the use of technologies has highly increased in the supply chain
systems. Supply chain is concerned with flow of goods, data and finances hence the success
of the company largely depends on the efficiency of the supply chain systems (Ayers &
Odegaard, 2017). Supply chain systems involve software packages, material handling and
product delivery. These all plays a major role in the management of the business.
There are large numbers of stakeholders attached with the supply chain systems. They are as:
 Suppliers: These systems help them in managing their supply especially the supply of
their stakeholders. They are internal stakeholders that are attached with the supply
chain and play a greater role in the management of demand and supply as they
provide the raw material.
 Government: Second important stakeholder in this is government as they impose the
taxes and policies which play a major role in the design of the supply chain systems.
According to the rules and regulations only a company need to design its supply chain
systems (Wang, Wallace, Shen & Choi, 2015).
 Customers: Since they are the end users and are connected with the supply chain
systems more closely hence they are affected by the supply chain of any company. If
the supply chain systems are effective then companies are able to work according to
the demands of the people.

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 Society in general: World needs a better supply chain system. This is because if the
supply chain systems are optimised then lesser amount of vehicles will be required
which will ensure that lesser amount of pollution gets created.
They have a deeper impact on the organisation and the organisation management processes.
This can be understood by the fact that with the help of efficient supply chain system a
company is able to make fast delivery of their products (Malik, Niemeyer & Ruwadi, 2011).
It will also ensure that profits can be generated with higher effectiveness. It also allows the
company and all its stakeholders to know about the exact location of the product. It improves
the production and all other operations of the company.
Recommendation
 It is recommended that Amazon must look towards greener inventory and supply
chain system.
 It is also recommended that company brings IOT in the supply chain so that more
efficient supply chain can be brought into practice.
 It is also recommended that Amazon adds corporate social responsibility as a part of
the inventory and supply chain system. This is possible by including the community
in the decision making process.
Conclusion
From the above based report, it can be concluded that Amazon has an excellent inventory mix
where different types of inventories are present. They have the role of managing the demand
and supply of the company since the fluctuation in the demand and supply cannot be
managed alone with the production capacity of the firm. It is having larger impact on the
operation management strategy. Inventory Turnover Ratio, Just in time, longer lifetime of the
resources and Larger Size are few concepts or theories that give access to the inventory
management in the organisation. Supply chain system is collection of activities, information,
people, organisations and resource used in delivering products from suppliers to consumers.

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REFERENCES
Ayers, J. B., & Odegaard, M. A. (2017). Retail supply chain management. CRC Press.
Blanchard, D. (2010). Supply chain management best practices. John Wiley & Sons.
Chaturvedi, N., Martich, M., Ruwadi, B., & Ulker, N. (2013). The future of retail supply
chains. Operations as a competitive advantage in retail, 59-67.
Christopher, M. (2016). Logistics & supply chain management. Pearson UK.
Crandall, R. E., Crandall, W. R., & Chen, C. C. (2011). Principles of supply chain
management. CRC Press.
Finbox.com, 2019. Inventory Turnover for Amazon.com, Inc. [Online] Available at:
https://finbox.com/AMZN/explorer/inventory_turnover
Hugos, M. H. (2018). Essentials of supply chain management. John Wiley & Sons.
Kozlenkova, I. V., Hult, G. T. M., Lund, D. J., Mena, J. A., & Kekec, P. (2015). The role of
marketing channels in supply chain management. Journal of Retailing, 91(4), 586-
609.
Malik, Y., Niemeyer, A., & Ruwadi, B. (2011). Building the supply chain of the future. TMI-
Treasury Management International, 83, 21.
Ross, D. F. (2016). Introduction to supply chain management technologies. Crc Press.
Stevens, G. C., & Johnson, M. (2016). Integrating the supply chain… 25 years
on. International Journal of Physical Distribution & Logistics Management, 46(1),
19-42.
Sunhotest, 2018. Inventory Management Theory. Retrieved from:
http://www.sunhotest.com/sunhotest_Affiche_238908.html
Wang, Y., Wallace, S. W., Shen, B., & Choi, T. M. (2015). Service supply chain
management: A review of operational models. European Journal of Operational
Research, 247(3), 685-698.
Wisner, J. D., Tan, K. C., & Leong, G. K. (2014). Principles of supply chain management: A
balanced approach. Cengage Learning.

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Yu, Y., Wang, X., Zhong, R. Y., & Huang, G. Q. (2016). E-commerce logistics in supply
chain management: Practice perspective. Procedia Cirp, 52, 179-185.