(1) Can you imagine what would happen if a Coca-Cola manufacturing plant ran out of the company’s familiar red-and-white aluminum cans? It would be impossible to complete the manufacturing process and ship the cases of Coke to retailers. (2) Management would be forced to shut the assembly line down until the next shipment of cans arrived from a supplier. In reality, operations managers for Coca- Cola realize the disasters that a shortage of needed materials can cause and will avoid this type of proble m if at all possible. The simple fact is that shutdowns are expensive because costs such as rent, wages, insurance, and other expenses still must be paid. (3) Operations managers are concerned with three types of inventories. A raw- materials inventory consists of materials that will become part of the product during the production process. The work-in-process inventory consists of partially completed products. The finished-goods inventory consists of completed products. Each type of inventory also has a holding cost, or storage cost, and a stock-out cost – the cost of running out of inventory. (4) Inventory control is the process of managing inventories in such a way as to minimize inventory costs, including both holding costs and potential stock-out costs. (5) Today computer systems are being used to keep track of inventories and warn managers of possible stock-outs. One of the most sophisticated methods of inventory control used today is materials requirements planning. What is one important cause of shutdown?
What is one important effect of inventory control?