Inventory Management Process

inventory management process
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Supply chain management Definition

Supply chain management can be defined as the strategic, systematic coordination of all the business activities inside a firm and across businesses within the supply chain, to improve the long term performance of the individual companies and the supply chain as a whole. Inventory represents a large portion of the business investment and must be well managed in order to maximize profits. This article will provide an understanding of Domestic inventory management, its management strategies followed by inventory control challenges and solution in world market. Finally, it will discuss on information management and procurement strategies. 

Inventory Management Process

Raw materials, goods in process and finished goods all represent various forms of inventory. In a literal sense, inventory refers to stocks of anything necessary to do business. Supply chain involves transformation processes from raw material through several stages of manufacturing, assembly and distribution till final products, which are finally delivered to customers. It also includes flow of information and finance in addition to the material flow. Each stage of material transformation may involve inputs coming from several suppliers and outputs going to several intermediate customers. 

The logistics manages the delivery of the goods, which often needs to be coordinated with the production department. The procurement department orders the supplies of the products and manages the supply of materials including raw material to prepare the final product. It also maintains the inventory and keeps it at the right level so that there is no interruption in the production. There can be a delay in the production process in case there is a delay in communications between the production manager and the procurement department.

Decision making in Supply Chain Management

The decision making process may involve many things like whether too much inventory should be kept in storage or only optimum amount.  Others include decisions related to: – maintaining a large variety of stock, increasing inventory turnover without sacrificing the quality of service; Keeping stock low without sacrificing service or performance, Getting lower prices by buying in large amount without slowing up the moving inventory and keeping optimum inventory on hand without getting caught with obsolete items.

A main motive of typical supply chain management (SCM) is to reduce total cost of transportation, inventory, warehousing, and order processing and information systems. The supply chain needs to be made more efficient and effective by implementing various new production technologies like Just in Time technology. Only the required amount of supply is delivered to the warehouse and whenever there is any more need the supply is delivered just on that time to avoid the wastage and make it more efficient. This is done by minimising set-up times and lead times to order only small lots. Suppliers may have to move near to the user plants to support JIT or have to do many deliveries in a day.

Global Inventory Management

There are many differences in inventory control of domestic and world market. However, technical side remains same. For example, the long retail channels and multiple suppliers are common in Japan and hence need high inventory level than in Europe and USA where channels are getting shorter. Giving customer support to developing country may require to place inventory in that country. So, multiple inventory strategies have to be made for different parts of the world while a common strategy might work in domestic market. Common factor is understanding the customer needs. 

Another, major challenge in the world market is to balance the great uncertainty in supply with the growing uncertainty in demand.  Sometimes, the demand increases and the supply remains constant or reduces which creates issues in the production and effects the production capacity. Especially, in the time of world recession (such as COVID19), it is quite common to have supply issues when most of the suppliers go broke as per this Journal paper.

Management need to consider managing the extra inventory, bad quality material, issues with resource planning and rise of production and delivery costs. According to many survey, these issues are sorted out by many in world but still not resolved totally. Another issue that add on to it is plenty of policies made for supplies either inside the country or on supplies from outside the country. 

Supply Chain Management Example: Carefour Technology 

It is world’s second largest retailer and leader of technology innovation especially in supply chain management. Carefour adopted following techniques at world market to speed, simplify and increase product and information flow to increase productivity and reduce cost:-

  • Reducing global inventory level: saved $183m in one day. For this company asked its key suppliers to help in managing inventory. 60 % inventory is controlled by vendors now until it arrives to stores.  Dir ect to stores products like ice cream or cold drinks were held till needed then supplied to stores
  • Developing closer relations with suppliers: company identified 30 major suppliers and became partner for future relations.
  • Reducing distribution centres: reduced numbers from 20 to 12 in Spain by increasing efforts to make use of time and labour savings.
  • JIT methods: as explained in this article earlier. 

Source

Consequently, Demand forecasting and coordinating it with production, procurement, and distribution is an important part of managing and improving the efficiency of supply chain operations in world market. Further it also includes co-ordinating all activities that creates demand on manufacturing capacity.  There is a high need of a better information management and real time transfer of data. that means data should be updated regularly and should not be old and redundant. Lack of proper information can result in wrong inventory information and over or under production which is both harmful. The proper information management can help out in the demand forecasts, production scheduling, distribution and contingency planning. Information management will also be discussed further in later part of this essay. Now we will see how whole supply network is managed for successful inventory management.

Optimal network configuration

Suppliers play an important part in any supply chain, hence it is important to maintain strong relationship with them and at the same time there is a need to keep back up suppliers to compensate in case of shortage of supplies. Toyota believes in long term relationship with customers and suppliers, where suppliers can be national or international. They have multi tier supplier network where lower level suppliers are managed by upper level suppliers. This makes sure that in case of any supply crisis at first level, the supply shortage can be compensated by the supplier at the next level. 

A proper management of all job orders that are currently in the inventory system and unprocessed. The concurrent incidental planning such as sourcing of material, scheduling, calculation of resource suitability and availability, valuation of resources according to microeconomic criteria, capacity determination as well as sequencing planning of job processing, and consideration of several manufacturing resources, can be modelled as allocation problems, where suppliers are assigned respectively to a particular number of demand, so that existing restrictions can be observed. 

Optimised allocation and processing of job orders and the generation of appropriate measures is required for managing the sudden disturbance in real time or connecting various networks of production inside company. Also, it is important to synchronize the information flow between the manufacturing departments of individual companies. Synchronization of the global information flows is required where the company needs to maintain connection with local as well as international suppliers.

Estimation and visualization of the production progress is required to estimate the amount of production that can be done with available resources. It is interesting to see Toyota implemented their waste management techniques and made more production from limited resources (Womack and Jones, 1996). Toyota accepted and implemented a SCM practice in a variety of product and service supply chains which was a way to manage external resources which was based waste minimisation techniques. The old and traditional production methods, like mass assembly lines can be replaced by new production techniques and technologies like “lean” production techniques which gives more flexibility. With this new technique there are no constraints of the traditional assembly line, Production levels can easily be changed and because of the flexibility options in the new techniques, the staffing on different product lines can be varied according to the requirements. This ensures the well utilisation of resources.

 

Information management

In this information age, with the invention of new technologies and high tech supply chain management system, the information processing can be done much faster than before. This is a major technological revolution related with information management and the Internet and with E-commerce and e-business, there are high chances to create, maintain and speed up the information and create better links between end customers and all stages of the supply chain. The companies with such new technologies get a chance now to eliminate the wastages that are produced in the production chain due to lack of useful updated data and hence utilise the current resources better and deliver more value to the customers by speeding up the whole process of supply chain communication.

Maintain the important data needed to manage demand coupled with the systematic and correct storing of this data on daily basis. Another important thing is to keep data updated. Consistent and Reliable data is very important for all supply chain operations. Production is made according to the demand, however, incorrect data may result in under production while actual demand may be more than produced material. 

Overall Procurement strategies

The whole procurement process management focuses typically on activities of operational logistics. For example, in a warehouse, pallets per hour is used to the find out the amount of receiving and despatch of product package per hour for picking, packing, delivering and overall throughput. Than service levels are measured by dividing whole product requested by products shipped. A more high tech and systematic operation can make some more measures; for example Agfa Gevaert Ltd in Australia, uses a range of measures which are divided in three parts: cost, throughput and productivity. As more systematic process, all these measures are collected for warehousing, transport and inventories.

Firms which perform such activities are considered as using advanced logistics practices. A company that has an integrative approach makes supply chain operations management more efficient. Efficient logistics includes an efficient management that provides the ability to transfer products and materials in a chain from suppliers via manufacturing and finally to customers at lowest possible costs considering customer requirements at the same times. Collaboration is required for a properly managed supply chain environment, there is a need to form collaboration with trading partners, and then with other tiers in the supply chain.

Conclusion

Inventory management has become important for local and global companies to gain profits. Inventory management is different in local and global markets and hence different strategies need to be implemented accordingly. Various techniques were discussed in this article that are very efficient in inventory management in world market like JIT, information management, Supplier relations and network management. Furthermore various procurement strategies were discussed in this article that can successfully be implemented in any inventory management. The example of Fourcare coupled with other examples in this article successfully clarifies the inventory management strategies and techniques adopted by global retailers to attain maximum profit at world market. 

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Ben Smith

RetailWire is trusted source for retail news in Australia. Get retail news, exclusive retail related business and marketing tips at RetailWire.

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