It will be evident that one organisation's output of finished goods may be another
organisation's raw material input. Ray and Millman[l] indicate that over the whole
of manufacturing and distribution in the United Kingdom, raw materials, work-inprogress,
and finished goods represent approximately 25, 25 and 50 per cent respectively
of total stock value. Although it is interesting to speculate on the effect on an
economy of different aggregate stock levels the issue of inventory management is
primarily an organisational one.
Within an organisation the existence of stock, together with some of its implications,
is very apparent. Usually the consequences of the physical presence or absence
of stock are expressed in money terms, and it is in this respect that the effect of successful
inventory management is measured.
The above apportionment of stock across raw materials, work-in-progress, and finished
goods conceals the fact that there are marked differences according to industry,
and to organisations within industries. Peterson and Silver[2] cite the case of the US
capital goods industry where 60 per cent of total stock is raw materials and compare
this with the consumer goods industry where only four per cent of stock falls in this
category. Indeed in this latter case a fourth area, the distribution system, was estimated
to hold 56 per cent of total stocks. Evidently the particular circumstances of the market
will influence both the size and disposition of stocks.