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  1. List and briefly explain the various types of inventory
  2. What are the various costs associated with inventory planning
  3. Explain the three major decisions associated with inventory planning and control
  1. List and briefly explain six benefits of quality to an organization
  2. How is quality planned, measured and controlled in an Operation

Briefly explain the following;

  1. Performance management
  2. Key performance indicators
  3. Feature and attributes of a product or service that are order winning, qualifying and important

How can an operation be improved using the importance and performance matrix

Types and Classification of Inventory

Inventory is the non-capitalized asset in business whose management helps in the flow of goods from manufacturers to the point of sale. Common inventories are of five types such as raw material, work-in progress, packaging items, finished products and supplies (Enqvist et al. 2014). On the basis of nature of business, inventories are classified into merchandise inventory and manufacturing inventory. The former is the inventory of trading goods whereas the latter is the inventory for production and sell of goods. The manufacturing inventory is further classified into four types, which are as follows:

Raw material: This includes material or goods required for producing the finished products. This inventory has the importance availing price discounts and safeguarding against market shortage situation.

Work-in progress: This includes saleable or non-saleable goods that are partially processed in the production department. The focus is to keep this inventory very low by engaging in proper production and manufacturing process..

 Finished goods: It is the final and finished product obtained in organization that are ready to be sold. It may include direct manufacturing or receiving order first and then manufacturing according to specifications.

MRO inventories: MRO inventories are meant for maintenance of the whole business operations. They are support functions for organization (Heizer 2016).

Management and storage of inventory is associated with huge cost to the organizations. The categories of cost associated with inventory planning include the following:

Purchase cost: While planning inventories related to raw materials or semi-finished goods, cost associated with purchase is most important. Companies may buy them as a whole in the form of finished products or purchase different components parts to assemble them into new products. The cost may vary on this basis.

Processing cost: This is the cost associated with processing of the inventories which required additional expense for arrangement of machineries and workspace.

Carrying cost: This is the cost involved in storage and management of inventories and the cost of capital. Cost of investment includes taxes on inventory paid, cost on working capital and cost in other legal liabilities too.

Shortage cost: It includes the cost associated with disruptions in production, loss of quantity discounts on purchase and loss of sale (Axsäter 2015).

Inventory management and planning is associated with many critical decision making process. It is the practice of planning and managing inventory to maximize the profitability of business. The main purpose of this decisions are to balance three associated cost of inventories such as purchase cost, holding cost and shortage cost. Three major decisions in inventory management include the following:

  • The first critical decision is to achieve balance between ordering, carrying and shortage cost. As the cost assigned to inventory directly affects net income, hence achieving balance in this area is important. Production budget decision is most important in this area as too large budget may affect the carrying cost. Accurate insight on sales forecast is needed to estimate sale demand and plan capacity and manufacture products accordingly. The purchasing cost decisions may be done on the basis of understanding regarding the process involved in producing a product. Many tools might also help in the calculation of purchasing tools (Holmstr?m et al. 2016).
  • Decisions regarding inventory are made on the basis of factors that affect quantity of inventory. These factors include size of order, number of order, availability of safety stocks, time and plan of production.
  • Another type of decision associated with inventory planning and control includes deciding on the factors that affect the per unit cost of inventory. This factors includes order size, freight and supplier of raw material (Heizer  and Barry 2013).

Cost of Inventory Planning

Maintenance of quality should be another main focus of an origination besides accumulating the largest profit margin and earning reputation for the organization. The main benefits of the maintenance of quality control are:

  1. Satisfaction of the customers is one of the benefits, which can be achieved by quality control. The more satisfaction they receive by utilizing the service or product, the more trust they develop on the organization and in this way the organization can earn a trustworthy customer to their lineup rather than having a fluctuating consumer base.
  2. Maintenance of quality also helps in reduction of production costs. The rationale behind this is that maintenance of quality as well as quality control will prevent production of inferior products or careless services and wastages.  This will in turn bring down the cost of production considerably (Bradley 2016).
  3. Maintenance of quality also helps to maintain a high morale of the employees. A high morale will help the employee to develop a job satisfaction where they believe that they are working in the concern of production of better as well as higher quality products and are providing consumers the exact product or service that they are providing for. This provides job satisfaction.
  4. They also help by providing improved techniques and methods of production. The main rationale is that maintenance of quality will ensure that proper supply of technical and engineering data to be provided for the product as well as for the manufacturing process which will in turn lead to higher uninterrupted production due to old techniques that have faults and slower production.
  5. Increase in sales is also a result for maintenance of quality by the organization. This is because quality maintenance directly ensures production of quality products. This is also helpful in attracting more customers due to better quality products and in turn increases sales. It also helps in maintain existing demands and also helps in the creation of new demands for the project. This indicator is also helpful for expanding market at home and also in abroad.
  6. Maintenance of quality also helps to maintain a good will as well as the reputation of the company. By producing better quality products and at the same time satisfying the needs of the customers, this indicator raises the goodwill of the concerns that reside in the minds of the people. An organization which is reputed can easily raise financial support from the market (Marinuzi and Krumay 2013).

Quality management is one of the most important parts that should be focused on by the organization for the overall benefit of the nation. Often quality assurance is referred by researchers to be the planned as well as the systematic activities that need to be implemented in a quality system which would ultimately help in fulfilling the quality requirement for the product or the service. At first a set of standards should be fixed for a service or a product which will be considered as its optimum quality and then process monitoring should be included so that errors can be prevented (Benavaides et al. 2014). Two principles needs to be followed while maintaining quality and assuring it. These are fit for a purpose which makes the product suitable for its intended use. The other one is right the first time which signifies that mistakes should be eliminated. Failure testing is also needed which will determine the stress levels, statistical controls and others like six stigma levels of quality. Quality control is then the process of testing the finished products which will show that whether any defects are present or not so to allow or deny the product (Zameer et al. 2015). Quality controls needs to depend on proper visual inspection, employee training and also organizational culture. Often organizations recruit quality control professionals to maintain organizational standards. These ensures that companies produce products which have lowest error rates, fewer customer complaints and no urgency of rework the product in future.

Performance management- It is the process of planning, monitoring and reviewing employee’s performance and contribution to organization by means of annual performance review or appraisals periodically. This evaluation is done by comparing performance in accordance with organizational objectives. The review process involves setting performance management objectives, monitoring progress of employees on those parameters and providing value based feedback to ensure that employees meet career and organizational goal in future (Buckingham and Goodall, 2015).

Key performance indicators (KPI)- KPIs are key quantifiable indicators or values that demonstrate the performance of a company in accordance with business objectives. It is used to evaluate the effectiveness of particular organization in achieving business goals. The selection and type of KPI depends on the nature of business, industry or role in business. It also an effective tool for performance management and evaluating success of organizations. Achievement of strategic goals is compared with this indicator. It is also used compare performance against other organizations within the same industry. KPIs are of two types:

Financial KPIs: This is concerned with revenue and profit margins of thee company such as current assets, debt financing and cash flow

Non-financial KPIs: Non-performance KPIs may include relationship with customers and employees, employee turnover and other details (Parmenter 2015).

Features and attributes of order winning products or services. 

The products which are order winning or order qualifying have the following attributes:

  • Competitive dimensions of service such as price, place and product and quality based dimensions such as cost , time and quality.
  • The presence of characteristics that can win customer’s attention or bid.
  • Production of high quality products that are both market specific and time specific.

Operations in an organization can be improved by means of importance/ performance matrix. This matrix compares performance scale on importance scale. The dividing line for importance scale include less important, qualifying and order winning. The derivation of rank through this matrix helps in the formulation of operations strategy. The competitive factors for which rank can be derived include quality, cost and others. Order winning objective for improving operations may include presence of elements of competiveness, things of customer values and efficiency in business (Goetsch and Davis 2014). .


Axsäter, S., 2015. Inventory control (Vol. 225). Springer.

Benavides-Velasco, C.A., Quintana-García, C. and Marchante-Lara, M., 2014. Total quality management, corporate social responsibility and performance in the hotel industry. International Journal of Hospitality Management, 41, pp.77-87.

Bradley, G., 2016. Benefit Realisation Management: A practical guide to achieving benefits through change. CRC Press.

Buckingham, M. and Goodall, A., 2015. Reinventing performance management. Harvard Business Review, 93(4), pp.40-50.

Enqvist, J., Graham, M. and Nikkinen, J., 2014. The impact of working capital management on firm profitability in different business cycles: Evidence from Finland. Research in International Business and Finance, 32, pp.36-49.

Goetsch, D. L., and  Davis, S. B. 2014. Quality management for organizational excellence. Upper Saddle River, NJ: pearson.

Heizer, J., 2016. Operations Management, 11/e. Pearson Education India.

Heizer, R. and Barry, R., 2013. Operation Management, Sustainability and Supply Chain management (Vol. 11). Pearson, UK.

Holmstr?m, J., Småros, J., Disney, S.M. and Towill, D.R., 2016. Collaborative supply chain configurations: the implications for supplier performance in production and inventory control. In Developments in Logistics and Supply Chain Management (pp. 27-37). Palgrave Macmillan UK.

Martinuzzi, A. and Krumay, B., 2013. The good, the bad, and the successful–how corporate social responsibility leads to competitive advantage and organizational transformation. Journal of change management, 13(4), pp.424-443.

Parmenter, D., 2015. Key performance indicators: developing, implementing, and using winning KPIs. John Wiley & Sons.

Zameer, H., Tara, A., Kausar, U. and Mohsin, A., 2015. Impact of service quality, corporate image and customer satisfaction towards customers’ perceived value in the banking sector in Pakistan. International journal of bank marketing, 33(4), pp.442-456.

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