Inventory management is the progressing procedure of moving parts and items into and out of an organization’s location. Organizations deal with their stock regularly as they put in new requests for items and ship orders out to clients. Viable stock administration is fundamental for guaranteeing a business has enough stock available to take care of client demand. On the off chance that stock administration isn’t dealt with legitimately it can bring about a business either losing cash on potential deals that can’t be filled or squandering cash by stocking excessively stock. A stock administration framework can help keep these mix-ups.
Reasons for Inventory Management
Stock administration has assumed a noteworthy position in associations because of the disappointments in holding inventories. The need of having and stock administration technique progressively expanded because of a few reasons. They are;
- To confront deficiencies in the market and to confront surprising interest for items.
- In order to increase profits, inventory management is important.
- To increase efficiency.
- To confront the occurrence of overload perils like obsolescence.
Methods of Inventory Management
Most organizations have an endless objective to locate the best strategy to control one of their biggest resources their stock. A wide range of strategies for stock control exist, from the extremely fundamental to the exceptionally perplexing. All strategies point toward one focus to have the least aggregate cost of possession while having the most elevated conceivable administration levels. A few strategies discover a harmony between the cost and administration parts, while others support one segment over the other. The modern methods of inventory control are;
- Just in time (JIT)
- Just in case (JIC)
- Drop shipping
- Cross docking
Traditional Inventory Management Methods
Before the advancement of technology and information technology, business inventory management depends on simple calculations which is used to calculate manually. Traditional inventory method depends on simple mathematic calculations to determine the quantity to be ordered and the leadtime. Following are some of the methods.
ABC Analysis
According to the ABC analysis method, inventories are being managed in accordance to a particular system. Simply, it categorize the inventories into 3 categories namely,
- A – high-value products with a low frequency of sales
- B – moderate value products with a moderate frequency of sales
- C – low-value products with a high frequency of sales
Category ‘A’ pays more attention on sales because the financial impact is high, category ‘C’ pays less attention on sales since it has low financial impact and while the category ‘B’ are between those two.
Two bin system
Two bin system used to determine the time to use the inventories or the materials in the production. In this system two bins are maintained such as first bin and the second bin also known as large bin and the small bin. Firstly, two bins are filled with the inventories and firstly the inventories in the large bin is used. After the inventories of the large bin is over, then a new order replaced. During the leadtime or till new inventory comes, inventories in the smaller bin are being used. When the inventories arrived, smaller bin is filled first and then the larger bin.
Continuous inventory system
In this system a continuous inventory system is maintained for every item. In simply it means that, when the inventory on hand decreases, a new order is replaced but in a fixed amount in order to minimize the total inventory costs. Which is known as economic order quantity. This also known as perpetual system or fixed order quantity system.
Periodic review system
Periodic review system count inventory on hand in a specific time interval such as every week or at the end of the month. Simply here the orders for the inventories are replaced at a specific time period which is fixed. An advantage of this is, no need to keep records as well as there are being a disadvantage of less direct control. Periodic inventory system and fixed time period system are other names given for it.
Modern Methods of Inventory Management
Just in time (JIT)
JIT is a modern method of inventory management used by popular companies in the world. According to this method, it doesn’t maintain a buffer stock or safety stock. It is because, when the inventories used for the production is going to be end, then the organizations immediately order new inventories with limited and the exact amount needed. Therefore, it doesn’t need to allocate more cost on the storage cost.
Advantages:
- Reduces the warehouse or the storage cost as it doesn’t need much space.
- Prevent the inventories being damaged and minimize wastage.
- Smaller investment need, as it purchases small amount of stock at once.
Disadvantages
- Risk of not receiving goods on time, since of not having good relationship with the suppliers.
- Risk of delaying customers receipt of goods.
- Lack of improper planning of stocks.
Dropshipping
This is a kind of an inventory management system which completely eliminates cost of storage. Which simply means that, orders of the customers or the shipments are directly send to our wholesaler or the manufacturer. Then the manufacturer deliver the orders to the relevant customers. Thus no need to keep goods in stock.
Advantages:
- No need to maintain a warehouse to store inventories.
- Easy to startup.
- Very low budget needed.
Disadvantages:
- Quality control issues.
- No guaranteed profits.
- High competition with over crowded market.
Cross Docking
Same as the dropshipping it also eliminates warehouse cost by using one transport mode to the entire destination from manufacturer to end consumer. Therefore, storage cost is zero.
Advantages:
- Reduces the inventory holding cost.
- Zero storage cost.
- Less labour requirements.
- Less transport cost as products are being easily transported.
- Product quality can be controlled.
Disadvantages:
- Need of proper planning to make it effective.
- Some manufacturers couldn’t be able to deliver products to cross docking technique.
- Need of high volume of products.
Bulk Shipments
This technique involves delivering ship goods in bulk which is very much cheaper and not frequently. This method is most applicable to the goods which have high customer demand.
Advantages:
- Able to carry high capacity of goods.
- Less shipping cost as not delivering goods frequently.
Disadvantages:
- Not a speed method of delivery as it takes more time.
- Less reliability of shipments.
- Need to allocate more space for warehouse.
Use of Technology in Inventory Management
Technology has become vital and integral part of all business plan. It has a bigger impact on inventory control in items of efficiency. The inventory management use of ease to accessing information and affecting organization performance, ease to evaluating risk in the organization invest a lot of many in purchasing inventory. Inventory management system must be updated time to time track the inventory.
The types of inventory management technology system. It’s designed to properly sort, control and act upon information with a company’s inventory. As explained by Kenneth Hamlett of the Houston Chornicle the two types of inventory technologies include manual and automated systems.
Manual Systems
Manual system is the most limited type of inventory management system. Manual systems as excel documents and endless spreadsheets.
Automated inventory management technology
This system are designed for development thousands company moves if not hundreds of thousands of products and raw material during operations. As a result to provide information and manage the flow of goods, like barcodes and include the use of automated identification and data capture and including radio frequency identification chips.
RFID technology in Inventory management (Radio Frequency Identification)
A RFID tag is modest microchip, in addition to a little ethereal, which can contain a scope of advanced data about a specific thing. Labels are epitomizing in plastic, paper or comparable material, and settled to the item or its bundling, to a bed or holder, or even to a van or conveyance truck. The tag is examined by a RFID peruse which transmits and gets radio signs to and from the tag. The data that the peruse gathers in grouped and handled utilizing unique PC programming. Peruses can be set at various positions inside an industrial facility or distribution center to demonstrate when products are moved.
REID can be used:
- To anticipate over stocking or under stocking an item or part.
- For stock security by situating tag peruses at purposes of high hazard, for example exits and making them trigger cautions.
- For quality control.
Benefits of Using REID:
- Help prevent theft
- Helps reduce labor costs
- Simplify business processes
- Reduces inventory errors and inaccuracies
- Increases distribution center productivity
In House System
ERP (Enterprise Resource Planning)
Undertaking asset arranging (ERP) is a procedure by which an organization (frequently a maker) oversees and incorporates the critical parts of its business. An ERP administration data framework incorporates zones, examples are arranging, obtaining, stock, deals, promoting, back and HR.
ERP is most regularly utilized as a part of the setting of programming. As the approach has turned out to be more prominent, expansive programming applications has been produced to enable organizations to execute ERP
MRP 1 ( Material Requirements Planning 1)
MRP (1) is a computer based production planning and inventory control system
Advantages:
- Identify shortage in inventory
- Help to minimize stock level
Disadvantages:
- Costly and time consuming
- Difficulties in implementing
MRP 2 (Material Requirements Planning 2)
A method for the effective planning of all resources of a manufacturing company.
Advantages:
- Capacity taken into consideration
- Improvement in quality control
Disadvantages:
- Integration problems
- Often limited to one location
Mobile Technology in Inventory Management
As of now the vast majority of then medium size organizations and additionally huge size organization are acquainted portable applications with deal with their inventories by means of cloud based innovation and internet. Business proprietor or trough can undoubtedly administrator inventories just utilizing at the tip of their finger through their savvy gadgets or RF scanners. There are both business and non-business application arrangement are accessible on Google play store and additionally apple application store.
Inventory Management Software
Stock administration programming is a product framework for following stock level, requests, deals and deliveries. It can likewise be utilized as a part of the assembling business to make a work arrange bill of material and other generation related reports. Organizations utilize stock administration programming to evade item overload and blackouts. It is a device for arranging stock information that before was for the most part put away in printed copy shape or in spreadsheets.
