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Inventory management is critical in both satisfying customer needs and controlling costs. Too much stock attracts costs such as additional insurance, damage and breakages costs and storage costs. Too little stock results in dissatisfied customers, lost sales and of course a reduction in profits.

Inventory management is a balancing act supported by trend management and forecasting in the supply chain.

Of critical importance to the success of any organisation is the ability to provide products in time, on time and at the right price.

Inventory management is important in all types of businesses, be they retail businesses or manufacturers. A retailer that runs out of stock result in customer frustration which could lead to diminished brand loyalty and lost customers. For a retailer, this is the worst thing that can happen, they spend millions every year reinforcing their brand in the eyes of the consumer and depend on suppliers in the supply chain to meet their and their customers expectations.

Manufacturers need to maintain inventory levels to ensure that the manufacturing process is not disrupted. Consider the cost of a manufacturing line that needs to be slowed down or shut down due to lack of raw materials. The result is disastrous, the cost of the finished product will increase, the next member in the supply chain will not get his products delivered on time and this will filter right through to the customer. Co-operation and collaboration between members of the supply chain needs to be open and honest to preserve the integrity of the supply chain.

Purchasing management needs to achieve the following.

Provide the factory with the products;

At the right price
In the correct quantities
Of the correct quality
At the right time
At the right place

A correctly managed and effective supply chain should allow arganisations to hold relatively low levels of stock but for this to happen, the communication between all members of the supply chain needs to be well managed and real time.