Answer: 4

 What is your own understanding on Inventory Planning and Control , What is

BOM and its relation with Inventory . Why do companies maintain inventories

Inventory Planning: The process of determining the optimal quantity and timing of Inventory
for the purpose of aligning it with sales and production capacity.

Inventory planning has direct impact a company's cash flow and profit margins especially for
smaller businesses that rely upon a quick turnover of goods or materials.

Inventory Control: Inventory Control is the supervision of supply, storage and accessibility of
items in order to ensure an adequate supply without excessive oversupply.

Bill of Materials (BOM): BOM is a listing of all the subassemblies, intermediates, parts, and
raw materials that go into a parent assembly showing the quantity of each required to make an
assembly. Basically, a bill of material (BOM) is a complete list of the components making up an
object or assembly. Bills of materials come in different types specific to engineering,
manufacturing etc.

Relationship between BOM and inventory: The importance of a BoM to inventory control is
that it provides a complete and accurate picture of what is required, all the materials needed for
planned work and the processes associated with creating a single product.

A BoM provides a description of the individual components and the relationship between each
separate part used in production. All components required to manufacture a complete shippable
item are listed by part number, description and quantity.

An effective BoM should also include detail of the tools and equipment required for assembly,
sub-assembly and any consumables needed in the manufacture of the final shippable product.

Having an all-inclusive measure of total assembly optimizes inventory control, enables better
decision-making, highlights areas for improved efficiency, cost-effectiveness and enhanced
quality. So, we can say that, relationship between BOM and Inventory is

Why do companies maintain inventories: Keeping inventory well-stocked is a crucial aspect of

keeping business operations running smoothly. There are a few main reasons why companies
choose to keep inventories stocked in their facilities.

First, keeping inventory on hand allows a company to meet any expected increases in demand. It
also ensures that the appropriate amount of products are available, should there be an unexpected
increase in demand. Plus, keeping a strong inventory supply allows a company to benefit from
periodic price reductions when making bulk purchases of needed raw materials.
And in the event that a facility’s systems fail or break down, having inventory available means
the company won’t take too large of a hit in sales, as there will be a supply of products that can
still be sold while systems are down. Lastly, steady inventory allows a company to regularly ship
products to retailers as needed, instead of having to send periodic batches based on the
production cycle or individual orders.

In addition to these key reasons, there are financial motivations for companies to keep their
inventories well-stocked. Not only does inventory figure into a company’s cost of goods, it also
contributes to a business profit margin. For accounting purposes, inventory counts toward a
company’s total assets, and it even determines a company’s liability when it comes to taxes.
Because inventory is so integrally tied to companies’ financial operations, understanding how it
affects business is critical for ensuring future success.

 Explain at your own Factors affecting Inventory Management Decision

There are 6 Factors Affecting Inventory Management. Those are;

When managing inventory processes, there are a variety of factors which we need to consider.
Both external and internal factors can affect inventory management in different ways, and it is
important to be aware of these variables.

 Financial Factors: Factors such as the cost of borrowing money to stock enough
inventory can greatly influence inventory management. In this case, finances may
fluctuate according to the economy, and it is wise to keep an eye on changing interest
rates to help plan your spending.
 Suppliers: Suppliers can have a huge influence on inventory control. Successful
businesses require reliable suppliers in order to plan spending and arrange production.
An unreliable or unpredictable supplier can have huge effects for inventory control.
 Lead Time: Lead time is the time it takes from the moment an item is ordered to the
moment it arrives. Lead time will vary widely depending on the product type and the
various manufacturing processes involved, and therefore changes in these factors can
require changes to inventory management.
 Product Type: Inventory management must take into consideration the different
types of products in stock. For example, some products may be perishable and
therefore have a shorter shelf life than others. In this case inventory must be managed
to ensure that these items are rotated in line with expiration dates.
 Management: Finally, responsibility for managing business’ inventory sits with the
owner, co-owners and the people who manages. While we may have multiple
employees acting as managers to oversee inventory processes, they typically will not
have the same stake in the business as the owners do.
 External Factors: There are multiple external factors that may affect inventory
control. For example, economic downturns may occur and this is something that you
 will generally have very little control over. Assessing the economy is a must in order
to guard against stock outs or a buildup of excess inventory.
 Explain “BOM and Why BOM is important and Explain difference between
Inventory and Stock, How it is help to manage Inventory Planning and Control
across the Supply Chain.

Bill of Materials (BOM): A bill of materials (BOM) is an extensive list of raw materials,
components, and instructions required to construct, manufacture, or repair a product or service.
A bill of materials usually appears in a hierarchical format, with the highest level displaying the
finished product and the bottom level showing individual components and materials.

Importance of a BOM:

 Improve material management by responding to changes in production.

 Reduce inventory levels and obsolete parts.
 Reduce manufacturing costs.
 Minimize clerical and engineering efforts by optimizing the tasks of maintaining and
changing multi-level bills.
 Supports variable length part numbers and unlimited descriptive text.
 Easy methods for accessing part information.

Differences between Inventory and Stock:

Stock items are the goods which are for sell to customers. Inventory includes the products we
sell, as well as the materials and equipment needed to make them. Inventory includes finished
products and all the assets a business owns or uses to complete production. there are four main
types of inventories: raw materials, work in progress, MRO supplies and finished goods. Stock
includes finished products, parts, materials—whatever you sell to customers. The more stock—
or products—you sell, the more revenue your business generates.

How BOM helps to manage Inventory Planning and Control across the Supply Chain

The Bill of materials used in businesses mostly functions as the roadmap to the functioning of a
finished product.

 Plans the purchasing with the help of automation.

 Keeps a tab on the total purchases of all the materials required sequentially, helping a
cost-effective plan to materialize.
 Maintains proper records and plans materials requirements.
 It also helps in keeping a tab on inventory control, thus preventing and reducing waste.
 Bills of materials designed for any product pave a path ahead and also allow scope for
rising productivity and yield, thus resulting in more profit.
BOM Example: While building a racing bike, the builder will need an assortment of various
tools required to make the bike from scratch. Items like wheels, brakes, seat, handles, a pulley, a
chain, plenty of small nuts, and screws along with various other things. A BOM for building a
racing bike would also contain the quantities required for each of the items. Now, based on the
type of Bill of materials, it might also contain the steps to build up the bike, along with the labor
and time consumed by each step. The BOM is like the basic blueprint laid out to build, rebuild,
or repair any item or product of interest. All the workers involved in the manufacturing and post-
production processes as well must be aware of the manufacturing BOM. It connects the various
units required for the final product to be ready.

In this case, the final product is the racing bike. The bike preparation completes when
assembling all parts of the bike along with the seat, handles, and brakes complete. Even one item
missing might stop the product from being viable, such as the cycle here might not work without
the chain, might not even start without the wheels, and might not stop without the brakes.

 If Supply Chain Control over Inventory / Material Management is Failed, Inventory

become a Liability - are you agreeing with That? In what case Inventory considered
as Liability.

The finished goods that a company gathers before selling them to end users are known as
inventory. But not only the finished goods but also the raw materials used in production are
regarded as inventory because they go through the production process or goods that are in transit.

Inventory is an element of current asset since it’s typically sold off within a year or less. Since
there’s an expectation that the inventory will be used or sold off within the one year or within the
accounting period. For this reason, it is always listed as a current asset in the balance sheet.

We know, a good inventory management can make supply chain both efficient and responsive
and give good financial results thus making it a great asset for the company.

But, if inventory management is not efficient enough, the same inventory can turn into a huge
liability.

Unsold and surplus inventory can become a huge liability for the business as there are costs that
the business may have to incur to store it. Besides, some inventory items have a limited shelf life
and can soon become spoilt, obsolete or may lose their value.

Again, with most goods or materials, there is significant cost involved in storing and preserving
them, such as the cost of warehouse space, depreciation, maintenance, manpower, utilities,
insurance, handling, statutory compliances, physical verification, losses, and obsolescence. Thus,
the longer the goods or materials are stored, the higher would be their costs incurred on them, or
increasing cost of goods under storage.
For example, if one has excess inventory of slow-moving product at warehouse, it will take up
some space. As a result, the money is also stuck which could have been put to some productive
use (buying raw material/ increasing distribution channel/ simply earn interest from bank). In
that Case Inventory is considered as Liability.

So If Supply Chain Controls over Inventory or Material Management is failed, in that case the
Inventory becomes a Liability.

 Explain How Inventory Play Role in Competitive Strategy in Managing “ Cost”.

Secondly - “ Though inventory is an Asset for a Company but Inventory
Considered as a Waste – Why , How – Explain in details according to your
Strategic Vision

Inventory Plays Role in Competitive Strategy in Managing “ Cost”: Every business

inventory requires a lot of focus, and such attention is provided through Inventory Management
and control. Through efficient inventory management and control, a company can formulate its
competitive strategy mainly in cost management. We know inventory usually involves the most
considerable cash-flow in any business, both concerning purchasing and selling stock.

Some of the most important roles that inventory management plays in formulating competitive
strategy in managing cost are as follows;

 Better Inventory Accuracy: With solid inventory management, we can know what’s in
Stock and order only the amount of inventory you need to meet demand. Through this
wastage of finished goods or raw material can be reduced.
 Resource wastage reduction: A perfect inventory management can decrease wastage of
various resources. Over stocking of inventory, causes over expense of energy, time and
human resources and thus it generates extra costs for the company. An efficient inventory
management can reduce such wastage and decrease these types of unwanted cost.
 Storage cost Reduction: As the inventory management controls the size of inventory, it
reduces cost related to storage. Uncontrolled inventory needs extra storage which usually
causes a very large amount of rental expenditure. Solid Inventory management can
control this cost.
 Avoids costly interruptions in operation: Inventory Management and control are
beneficial in limiting the misuse of inventory and resources. By avoiding these types of
costly interruptions, businesses can reduce any ‘hidden’ costs.
 Brings Potential Saving: Proper Inventory Management and control can Bring in
Potential Saving as benefits of inventory management. These benefits of inventory
management provide businesses with monetary and real-time benefits.
 Facilitates Purchase Economies: Good Inventory Management and control helps in
Facilitating Purchase Economies and maintaining steadiness in production operations.
This reduces purchase cost.
So from the above discussion we can say that, Inventory management controls wastage, resource
mismanagement and reduces unwanted costs. Thus, it plays a very vital role in Competitive
Strategy in Managing Cost.

Though inventory is an Asset for a Company but Inventory Considered as a Waste:

Inventory is regarded as an asset because this are the goods which are expected to be sold or used
up within the year or the accounting period. If the goods are sold within the expected period, it
becomes cash and that can be inject into the company’s finance as investment. But scenario is
not always like this. If the goods remain as surplus or unsold, those become a headache for the
company. Because this surplus or unsold inventories incur significant cost and wastages. Not
only that, some of those inventories have short shelf time, if extensive storing measures aren’t
taken, those inventories could be damaged. And that causes a huge amount of loss.

When the inventory adds no value and has significant costs associated with it; it is a “waste”.
For example, the cost of steel is significant, and that cost generates no return if it sits on the
floor, a rack or shelf. The longer it sits there the more it hurts your cash flow. Another example
could be of food industry. If the unsold food are not kept in proper storage facility, those could
be perished and this will create huge loss for the company.

So we can say that, when inventories are not sold or remains surplus. It creates loss or significant
cost and doesn’t add any value, it becomes a waste.