Wednesday, September 18, 2013
"Inventory management is the process of efficiently controlling the acquisition, storage and use of goods/ raw materials needed by a company in order to produce items it will ultimately sell; and the control of quantities of finished goods it will also sell". Inventory management is the process of efficiently overseeing the constant flow of units into and out of an existing inventory. The inventory of a company is one of its major assets and represents an investment that is in use until the item is sold or used in the production of an item that is sold. It also costs money to store, track and insure inventory. For example according to dell when a computer made is not shipped it loses 1%- 2% of its value. This could eventually be very costly and affect the profitability of the company. Many companies today such as Dell, Apple, Eaton etc; use their ability to manage their inventory as competitive leverage to increase their profitability. Inventory management is not limited to the delivery of raw materials to a company or the shipping of finished goods from a company. It also deals with the effect movement of raw material through all the processes of production till they are delivered to the customer.
For effective Inventory management companies have to balance some areas of their inventory such as;
Lead time: this is the amount of time it takes between when a process starts and when it is completed. Generally, companies strive to reduce the time it take them to deliver products to the market. Also, for an efficient supply chain companies have to determine and analyze the time it take their suppliers to supply raw materials needed for the company’s production.
Buffer Stock: this is a supply of inputs held as a reserve to safeguard against unforeseen shortages or demands. In essence buffer stock is the additional units above the minimum amount required to continue production.
Cycle Stock: this is the Average inventory maintained in-between order points.
Pipeline stock: Inventory Moving from one point to another or one process to another.
Work In Process (WIP): materials or goods at different interim stages of production/ operation and not ready for sale.
Finished goods: Goods that have been completely processed and are ready for sale.
Finally, inventory management does not only influence the control of volume of inventory and movement of inventory but also helps companies keep track and maintain records of their inventory through their process.