Traditionally, manufacturing companies have maintained large amounts of raw materials inventory, work in progress inventory and finished goods inventory to act as buffers so that operations can proceed smoothly even if there are unanticipated disruptions. This stems from an emphasis by the conventional manufacturing systems on 'keeping all the workers busy'. Also, inventory management is heavily plagued by a myth that historical sales data is all the data needed to make good forecasts for inventory management.

Required

1. Briefly list the problems faced by traditional inventory management systems.

2. The list of problems plaguing traditional inventory management systems makes it quite evident that there needs to be an alternative sequence of events, from purchasing of raw materials to the satisfaction of customer demand, that may be more applicable in the current business environment. Discuss all the points around which this alternative sequence would revolve.

3. Traditionally, manufacturing companies maintained large amounts of inventory as a buffer for smooth operations. However, companies should select the right levels of inventory to balance inventory ordering costs, inventory carrying costs and the costs of not carrying sufficient inventory. Briefly describe these costs associated with inventory and identify the right level of inventory that should be maintained.