Unveiling the Conflicting Goals of Inventory Order Quantities: Perspectives Across Business Areas

Inventory order quantities have conflicting goals because the needs of each area of the company differ. Some areas of the company will prefer that you order larger quantities of inventory and some will prefer that you order less. Let's take a look at the inventory order quantity preferences of different job roles.

Goals of the Purchasing Manager

The purchasing manager aims to minimize costs by ordering large quantities of inventory. Bulk purchases often offer volume discounts, reducing the per-unit cost. Additionally, larger order quantities can help negotiate better terms with suppliers. However, ordering excessive quantities can ties up valuable cash flow, increases storage costs, and increases the risk of part becoming obsolete before they are used.

Goals of the Warehouse Manager

The warehouse manager is responsible for optimizing storage space and ensuring smooth operations. They may prefer smaller order quantities if they are nearing warehouse capacity limits.. Ordering smaller quantities more frequently helps maintain a lean inventory system and reduces the risk of stockouts. However, this preference can result in higher per-unit costs if smaller quantities eliminate bulk purchase discounts. The preference of this role is in conflict with the preferences of the purchasing manager.

Goals of the Production Manager

The production manager focuses on maintaining continuous production flow. They may prefer larger order quantities to ensure uninterrupted production supply. Ordering in bulk helps prevent production delays caused by part shortages, however, excess inventory leads to additional storage requirements and increased risks of obsolescence. The preference of this role can be in conflict with the warehouse manager’s preferences.

Goals of the Finance Manager

The finance manager aims to optimize cash flow and minimize working capital. They prefer smaller order quantities to reduce inventory holding costs, lower accounts payable and protect cash flow. However, this approach increases the risk of stockouts and can affect customer satisfaction when goods are not readily available to ship out.

Summary

Each role listed above has their own goals to meet and metrics by which their performance will be judged. It’s not possible to satisfy the preferences of every business area since the goals conflict.

Balancing these goals requires analysis of costs, customer demand, cash flow needs, storage capacity, and production requirements. Likely, the most pressing challenges of the company will drive which factors you choose to give more weight in your inventory quantity decision making today.