Commonly Used Terms

Aggregate inventory management refers to a basic inventory management method that groups items categories, namely, raw materials, work-in-process, and finished goods. It is also referred to as Aggregate inventory control; it manages multiple individual items under each category.

Aggregation(Categorization) could be done on the basis of:

1. Distribution pattern
2. Stage of Production flow
3. Production Process
4. Product or SKU type
5. Demand Patterns

Objectives of Aggregate Inventory Management:

• Support business strategy and operations
• Best customer service
• Lot size/safety stock can help meet demand
• Ensure that inventory practices support financial objectives
• Low-cost plant operation- operating efficiency, lower production runs, less setup cost
• Balance customer service, operations efficiency, and inventory investment cost objectives
• Minimum inventory investment - a balance between low costs, customer service, and operating efficiency

Aggregate Inventory Management can be used for the following processes:

1. Calculating inventory costs by category
2. Matching supply with demand
3. Determining the types of inventory to be held
4. Setting inventory objective and policies
   
   

Aggregate control is more concerned with the cost and benefits of carrying each class of inventory. For example, the raw materials for a Table/Sofa manufacturer consist of Cloth, wood, screws, varnish, paint, and uncut leather. Work-in-process for this same company might consist of assembled tables without paint or varnish and sofa frames that still require foam and upholstery. The company controls these items with a different set of parameters. Completed items ready to sell make up the company’s finished goods products. The company controls finished goods based on the category’s supply and demand patterns. The control measures on the raw materials are based on their inventory costs.