Question

• What is the difference between a requirements philosophy and a replenishment philosophy of inventory management? Why is this difference important?

• Compare and contrast the management of finished goods inventory in a manufacturing firm with that in a retail or wholesale firm.

Answer 1

What is the difference between a requirements philosophy and a replenishment philosophy of inventory management? Why is this difference important?

Requirements philosophy of inventory management refers to when a company orders new stock as required based on varying demands and sales forecasts for a specific period. They don't have a fixed number of stock but rather the stock levels fluctuate with the supply and demand in the market. For example, many stores order additional stock during the Christmas holidays to cater to greater demand during the holiday season.

The replenishment philosophy of inventory management refers to when a company sets a fixed number of stock and replenishes the stock when the existing inventory falls below the fixed amount. For example, a store may set 100 laptops as its fixed number and replenish the stock when the total number of laptops available in the store fall below 100.

The difference between these two philosophies is very important. This is because every product and every market has different needs. For example, while milk is a perishable good, which cannot be stored in large quantities as it may get spoiled if unsold, some products have varying demands which require adjustable inventory management to cater to the forecasted demands.

This is where the two philosophies help a company in managing its inventory effectively. By understanding the nature and attributes, demand and supply of its products, a company can implement an effective strategy that would help in managing its stock and providing satisfaction and high-quality service to its customers.