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Another important area where inventory has a significant impact is throughput. For a supply chain throughput is the rate at which sales occur. If inventory is represented by I, flow time by T, and throughput by D, the three can be related using little’s law as follows. For example if the flow time of an auto assembly process is ten hours and the throughput is 60 units an hour little law tells us that the inventory 60*10=600 units. If we were able to reduce inventory to 300 units while holding throughput constant we  would reduce out flow time to five hours 300/60. We note that in this relationship inventory and throughput must have consistent units

The logical conclusion here is that inventory and flow time are synonymous in any supply chain. Managers must use measures that lower the amount of inventory needs without increasing cost or reducing responsiveness because reduced flow time can be a significant advantage in a supply chain.

Role in the competitive strategy

Inventory plays a important role in a supply chain’s ability to support a company’s competitive strategy. If a company’s competitive strategy requires a very high level of responsiveness a company can use inventory to achieve this responsiveness by locating large amounts of inventory close to the customer. Conversely a company can also use inventory to make it more efficient by optimizing inventory through centralized stocking. The latter strategy would support a competitive strategy of being a low- cost producer. The trade- off implied in the inventory driver is between the responsiveness that results from more inventories and the efficiency that results from fewer inventories.

Minimize costs at acceptable inventory levels:

Replacing inventories in exceptionally small quantities result in low investments but high ordering costs. Thus a point has to set where the total inventory carrying cost is bare minimum but the level of inventory is such that it does not effect the production or customer base.

Provide desired customer service level: inventories offers service in terms of satisfying customer demand. Inventory influences the time and costs of service. The location of inventory determines the time in which the customer will be served while a company policies concerning the economic order quantity safety stocks placement procedures and time will determine the cost at which the customer will be served.

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