Inventory management Write For Us – Inventory management is one of the oldest decisions in operations, and we have traditionally faced it with subjective criteria, manual processes and poor-quality historical information. We do not always have the processes, systems, and trained personnel to manage demand and generate an adequate sales forecast.
What is the importance of inventory?
Inventory expenses are usually the most significant expense on the income statement. Everything we keep in optimal conditions to use later is inventory and generally represents the most important asset on the balance sheet. mportThe only reason to “hold” stock is to make it cheaper than not having it, which is clearly seen when we use it for customer service and to eliminate production line stoppages.
What are the main functions of inventory?
Inventory is essential to have a good assortment of products and to maintain a sufficient quantity of each one, considering the flexibility of our supply chain and our suppliers’ production and delivery times. It is also a good “buffer” to couple supply operations such as production, manufacturing and distribution. Additionally, it is excellent support for the sale as “security” against the variations that the demand may have.
Other functions of the inventory are to take advantage of discounts for anticipated purchases, comply with minimum production batches or transportation of suppliers, and prevent “lack of supply” from suppliers or due to the availability of products or components by season.
So how many types of inventory are there?
There are 2 types of inventory based on its consumption. This cycle inventory will be consumed by the sale or production in a particular time cycle, and the security inventory will cover deviations in demand or variations in supply.
If the inventory is consumed by the sale, it has “Independent Demand” generated by our customers and consumers; if the list is destroyed by production, it has “Dependent Demand”, which we can control through the master programming of operations.
In your operation, how is inventory managed?
Many organizations understand the importance of professionalizing the operations team and have invested heavily in training and systems to improve their results and inventories.
Organizations still use informal procedures, such as an inventory policy “by decree” or “director’s mandate”; these policies can be pretty effective in a small-scale operation and in the short term. But we must consider that, as the product portfolio and production and sales volumes grow, not implementing formal methods to control inventories can wreak havoc on cash flow and capital requirements and even limit the organization’s growth.
What models are used to determine purchase and inventory levels?
To control items of meagre value, the recommendation is not to complicate your life, and we use the simplest possible method, for example, the double box model. When the first box emptied, the purchase order placed, while the inventory of the second box consumed. The list must arrive and available before the second box emptied.
To define the purchase and inventory levels of other types of items, the most widely used models, which accepted by the majority of operations professionals, the “periodic review model” and the “continuous review model”, or “reorder point model”.
In the periodic review model, an optimal inventory level is calculated, and variable quantity orders are periodically placed to achieve it. In the continuous review model, a reorder point is calculated, triggering a fixed quantity order when reached. Both models assume that the demand is variable in time and that, therefore, the inventory can exceed the point of zero inventories, generating shortages; thus, both models include a statistical safety factor. The model to used will depend on the nature of the consumption of the article. These models must adjusted periodically, which implies that the staff have applied statistical skills.
What techniques and tools are used to manage inventory?
It recommended to design and implement a process to manage and control our inventory; In the same way, personnel must trained, and the most appropriate system and software must provided.
When we have tens, hundreds or thousands of articles, it becomes necessary to segment them and use tools and techniques to manage them; usually used:
The ABC of inventory (Pareto or 80-20 theorem) allows us to create categories and give them particular treatment based on them. To establish it, variables such as annual consumption, unit value or replacement cost used. This technique helps us create and complement an “inventory policy”.
MRP (Material Requirement Planning) is a technique that allows us to establish or calculate the projected demand for materials and components based on the (independent) request that the finished product items will have. This done through master production scheduling and material purchase planning.
JIT (Just in Time) is a technique that seeks to eliminate inventories by aligning the capabilities and flexibility of the supply chain. Suppliers, even at various levels, usually must included to achieve the desired objectives. Care must taken not to “move” inventories from our warehouses to supplier warehouses and yards.
Kan-Ban is a technique that allows “visualizing” the movement of items through the entire supply chain or in some of its sections. It achieved using “cards” (before, the cards were physical, today, the process has digitized). These cards allow flow control between operations where the operating teams actively regulate the flow of materials and items, improving availability, asset utilization and reducing costs.
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