Objectives and Benefits of Inventory Management

Objectives and Benefits of Inventory ManagementAn inscription is basic eachy a detailed list of all the items in stock. Inventory consists of raw materials, work-in-process and confinesinate goods. In todays highly competitive market, descentes take away to principal(prenominal)tain an reserve level of stock to meet the customer brings at any quantify. Inventory concern is part of the offer orbit trouble.Over the past years, the concept of supply chain circumspection SCM has been given a considerable attention. This is an approach to pick up the supply chain as a only rather than as a set of separate processes (Weele, 2002). Mentzer, Dewitt, Keebler, Min, Nix, Smith and Zacharia defined Supply chain forethought SCM as the systematic and strategic coordination of the traditional business operations. The briny aim of supply chain management SCM is to improve the long term performance of each firm as well as the whole supply chain (Mentzer, Dewitt, Keebler, Min, Nix, S mith and Zacharia, 2001).Inventory management involves system and processes of maintaining the appropriate level of stock in a w behouse (Barcodes, 2010). These activities includes identifying necessary gunstock requirements, and creating replenishment processes, tracking and monitoring the usage of items/stock, reconciling stocktaking balances as well as reporting document status.(Barcodes , 2010). It is basically the process of expeditiously bidling the amount of stock in order to avoid oversupply list. Reliable ancestry management will in that locationfore minimise the represent associated with armory (Barcodes, 2010).Inventory management involves a wide scope of processes ranging from lineage forecasting , replenishment, demand forecasting as well as lineament management (Wikipedia, 2009).Objectives and benefits of lineage managementAccording to Stylus Systems, The 3 main objectives in inventory management atomic number 18Improved customer portionReduce inventory beautifymentTo increased productivity of business (Stylus, 2008)Benefits of inventory management (Stylus, 2008)Inventory management systems locoweed help reduce the m to respond to changing market demand of products and can help pull strings excess stockIMS tender a means for business to in effect manage or maneuver their inventoryIMS helps businesses to constantly analyse their business processes such as gross sales and purchasing in order to make believe efficient inventory decisionsStylus systems also reported that inventory management systems IMS can provide total insight on stock proceedingsStylus systems also stated that IMS can provide hand on knowledge on inventory which might lead to increased sales and efficient customer services.Development in inventory managementPresently, there argon two major approaches to inventory managementMaterials requirement grooming (MRP) MRP is simply a management system in which sales are converted into loads on the facility by sub-u nit and time period. Here, orders are scheduled more than closely thereby reducing inventory and lecture times becomes shorter and more predictable (Hedrick, 2003). MPR review order quantities periodically and as such allow ordering only what is currently needed. This helps make unnecessary inventory levels very low.Just-in-Time (JIT) JIT approach ensures that a business should only have got inventory in the ripe(p) quantity at the right time with the right quality (David, 2004) .Most organizations adapt to this system to integrate inventory management for a more competitive advantage (Kaynak, 2005). It eliminates inventories rather than optimize them.Why keep InventoryInventory refers to a detailed list of all the items in store or warehouse. According to Inman, Inventory refers to the items that are stored in warehouses or distribution centres in excess of what the store needs (Inman, 2010).The following are the reason why business keeps more inventory than they currently nee d (Inventory Management, 2010).Meet Demand this ensures that customers get the product or item that they emergency when they want it.Keep Operations running When for example manufacturers run break through of stock to manufacture certain product, the whole production process or operations will be halted and thus manufacture of the finished product. In order to prevent this, most manufacturers purchase excess inventory.Lead time When a shop or a factory places an order for a particular item, the period of time between the order placements and when the order is received is known as lead time. Business and then should have hands on inventory during the lead time in order to keep its operations running.Hedge This involves keeping inventory against inflation in outlay of products. This allows the buyer to buy at a lower damage than when the equipment casualty increases.Quantity Discount Quantity discount refers to reduction in price of an item when purchasing in bulk. This always influences most businesses to buy more than it needs which might lead to excess inventory.Smoothing Requirements businesses sometimes acquire approach inventory for products that have unpredictable demands in order to meet demand. better practice in inventory managementIn an effort to exploit their return on investment (ROI) and avoid excess inventory, many businesses invest a fortune in inventory management systems.In a report by Philip woodlouse ( slater, 2009), he stated that most of these systems fails to recall expected services and rather result in excess inventory. This is because software system can only optimise the values it has and non what it could be and as a result, it neglects some important external influences like changes in the management process. He stated that Worlds best practice inventory management demands that the inventory management system is optimised not just the inventory. Inventory management therefore goes beyond software system and as stated by Philip Slater (Slater, 2009) inventory management involves combination of know-how, process and reporting that collectively provide a means of maximizing availability while minimizing cash investment. In the report, he stated five level of worlds best practice inventory management that when fully implemented, can enable businesses to reduce their inventory investment or cost. These levels areAd Hoc this level require less control as inventory is expensed when purchased on an as needed basis and use immediately.Storage this level involves the storage of items for use and not strictly controlled. Here, inventory is expensed when purchased. This approach tends to increase total expenditure as items are purchased in economic quantities and discourage review and development due to lack of controlCapitalisation This approach entails the use of software solution to control inventory and provide good availability. Unfortunately, most businesses use their software mostly for tally and accou nting.Software Optimisation at this level, inventory is capitalised and the levels of stock are optimised ground on a risk/return algorithm. Software solution can automatically adjust stock levels based on the history of demand and supply but these level are not trusted by most business because they believe the supply and demand may not represent actual usageSystem Optimisation At this level, all factors influencing inventory investment are reviewed periodically. The main purpose of inventory management is to minimise overall cash investment without increasing risk. This according to Philip Slater is the worlds best practice in inventory management (Slater, 2009).Capitalisation and system optimisation goes hand-in-hand. For an effective system, the management is therefore required to possess the know-how, indemnity development, measures and reporting required to take the business to level 5 (System Optimization) and not just the software alone(Slater, 2009).