Inventory management can be considered as an intricate issue or topic ascribing to the various diversity factors of the actual life circumstances. To implement inventory management system successfully, it requires a complex way to manage the constantly changing external and internal environment (Kobbacy & Liang, 1999).
Inventory management is refers to stay track of the stocked products of one corporation. Inventory management monitors the products' amounts, dimensions, weight, and location. It assists managers or business entrepreneurs identify and aware of the schedule or timetable to restock the goods or purchase more raw materials to produce their products (“Inventory Management”, n. d.).
Effective inventory management is indispensable for assuring a firm has adequate goods in their warehouse to satisfy the demand of their clients. If inventory management has not processed carefully, it can cause a firm spends excessive capital by keeping too many goods in the inventory or lose potential profit on potential sales that can't be satisfied timely. A system for inventory management can assist corporations to avoid these deviations (“Inventory Management”, n. d.).
In whichever corporation or business, all business functions are connected and interlinked to each other. Besides that, inventory management is a very significant task that regulates the supply chain's health and influences a firm's financial health. Every corporation continually strives to retain ideal inventory to be capable achieving its demands and prevent under or over inventory that can affect the bottom lines.
The main function of inventory is to utilize production and marketing to enhance profitability, to obtain the greatest amount for the business's investment. There are other purposes of inventory, such as establishing a safety stock, improving efficiency, balancing demand and supply, and geographical specialization. All of those support to improve a business's profitability (Johnson, n. d.).
Corporations frequently rely on inventory to fill customer orders or operate. Inventory is a main company asset that supports a corporation with tasks, for instance planning and staying within budget. Therefore, corporations should treat holding accurate inventory records as a main management instrument that has numerous benefits (Thibodeaux, n. d.).
2.0 Literature Review
Managing movements of material and inventories in supply chain relates fundamentally the two matters in question, which are “when to deliver/order?” and “How many to many?”, for instance, one quantity-related and one-time related issue. Some alternative techniques for managing with these problems have been evolved for the past many years, and some of the techniques are exercised in industry (Mattsson, 2007).
With the exception of techniques established on visual signals like Kanban, nearly all of those inventory controlling techniques currently exercised were expanded in the starting and middle of the twentieth century. For instance, the widely known square-root formula for computing economic order quantities (EOQ) was released as early as 1913 and the likewise famous reorder point system was released in 1934. Other regularly employed techniques like cover-time planning were expanded in the 1950s and material requirements planning (MRP) in the 1960s (Mattsson, 2007).
Even if the techniques were expanded many years ago, the techniques are still performing competently from a theoretical point of view. However, the decision models inherent in the techniques are continuously established on a number of streamlining assumptions (Mattsson, 2007). Correspondingly, how successfully an inventory control technique can be anticipated to perform is not only relying on how successfully it performs theoretically, but also on the degree to which these assumptions are reasonably effective in the planning environment in which the technique is employed. The more the technique mirrors the real planning environment, the more valid it is to employ and the more useful it becomes as a decision support instrument (Mattsson, 2007).
Since the above-mentioned techniques were employed, there are considerably some changes in the planning environment have occurred. This is especially the case with respect to lead times and order quantities in which was affected by the just-in-time principle, which have been significantly reduced in the last twenty or thirty years. Up to about three decades ago, inventories were generally refilled once a month or less regularly, but the frequency of refilling is more like once a week and, in certain cases, even every day (Mattsson, 2007).
The relevant growth has occurred for delivery lead times. Lead times were usually several months or weeks about three decades ago, however are one or two weeks or even merely a few days in many cases at present. Based on survey studies in European firms, these movements towards shorter lead times and order quantities during the end of the 20th century have been indicated (Mattsson, 2007).
For example, the average delivery lead times have been decreased from twenty seven days to twelve days between 197 and 1998, and they were anticipated to be further decreased to 9 days by 2003, with one-third of the orders experiencing delivery lead times between 2 to 4 days (Mattsson, 2007).
Lean manufacturing (LM) is enjoying its second peak at present. Corporations in several industries are executing lean practices to achieve better performances and keep pace with the competition. Every corporation has to spend in manufacturing management technologies, methods, and programs in order to stay competitive (Demeter & Matyusz, 2011).
At present, lean production (LP) is one very prevalent investment selection, which includes of several manufacturing practices, consisting supplier development, worker empowerment, continuous improvement, total productive maintenance, quality development, pull production, process focus, and so on (Demeter & Matyusz, 2011).
The primary objective of LP is to fulfill customer requirement on the highest possible standard by the elimination of waste. Several sources of waste are excess inventory, unnecessary waiting, movement or transportation, sub-optimized processes, faulty products, and overproduction (Demeter & Matyusz, 2011).
Just – in – time (JIT)
Just – in –time (JIT) is employed on the concept of eliminating waste by the reduction of manufacturing processes. Such reduction involves elimination of overly large lot sizes and excess inventories, which lead to unnecessarily long customer cycle times. Implementations unique to JIT are differentiated into 4 dimensions. Kanban manages the motion of orders to a shop floor as every container of parts must be attached with a Kanban card, the volume of inventory on the shop floor is administered by the number of cards allowed (Flynn, Sakakibara & Schroeder, 1995).
Lot size reduction practices increase flexibility and minimize inventory. JIT scheduling activities involve scheduling daily production and mixed model scheduling to match requirement. Setup time reduction practices have as their objective the simplification of the times needed to alter machines over to act on a set of different pieces, which is an economic requirement to the use of smaller producing lots, allowing a closer match between customer demand and production (Flynn et al, 1995).
The JIT environment in Japan appears to be the least-cost production control instrument, decreasing manufacturing lead times, and decreasing inventory levels. Most of the cost benefits of JIT taken place when large inflation increases caused in large grows in the expenses of carrying inventory (Plenert, 1999).
Material Requirements Planning (MRP)
Material requirements planning have obtained strong challenges of its productiveness from Japan. This is due to the principle that there must be one best control system and production planning and that as the Japanese are performing better than the West in electronic components production and automobile, the Japanese's system must be better. It is suggested that the only reason that is still implementing so many producers with MRP is the problem in reforming to the JIT process, which requires the reorganization and overhaul of the entire plant (Plenert, 1999).
The master production schedule (MPS) constitutes a plan in MRP system for the operation of all end-products over a particular planning horizon. It identifies how much of each end-product will be manufactured in each planning phase, so that future materials purchases and component production requirements can be computed by employing MRP component-explosion logic. Therefore, the MPS has to be workable, so that parts can be manufactured within the capacity obtainable in each time period (Clark, 2003)
Economic Order Quantity
Economic order quantity model (EOQ) is referred to an operation management technique to discover the best order quantity normally by evaluating costs of inventory holding, procurement, and back order. The fundamental supposition of the traditional EOQ model is that 100% of ordered products are prefect. This supposition may not be effective for most of the production settings. Beginning from this point, different EOQ and economic production quantity (EPQ) have been developed by researchers which accompanied by percentage defective objects (Eroglu & Ozdemir, 2007).
The long-established economic order quantity (EOQ) model presumes that the dealer must be paid for the products as soon as the products were obtained. In practice, the supplier desires to stimulate his items and so the supplier will provide the dealer a postpone period, that is the trade credit period (Huang, 2007).
The retailer can trade the products and earn interest and accumulate revenue before the end of the trade credit period. On the other hand, if the payment is not paid by the end of the trade credit period, a higher interest will be charged. Thence, it makes economic significance for the dealer to postpone the payment of the replenishment account up to the end of the moment of the allowable period approved by the provider (Huang, 2007).
Vendor Managed Inventory (VMI)
In last few years, many corporations have been forced to enhance the operations of supply chain of their firms through sharing the intelligence of inventory and demand with their clients and suppliers. There are different terms for vendor managed inventory (VMI) been created by different industries. However, all the terms are established virtually on the identical concept (Disney & Towill, 2003).
VMI is referring to a strategy for supply chain whereby the supplier or vendor is given the liability of administering the client's merchandises. In the last decade, VMI has become more favored in the grocery industry, because of the retailers' success such as Wal-Mart. Moreover, it is only comparatively lately that the essential information and communication technology (ICT) has become economically accessible to facilitate the operation strategy, even though Holmstrom (as cited in Disney & Towill, 2003) has expressed that it can be easily facilitated through e-mails or fax, and spreadsheets. Disney, Holmström, Kaipia and Towill (2001) have executed VMI in a real-world supply chain applying data obtainable from a widespread enterprise resource planning (ERP) system and a decision support system which is spreadsheet-based.
In addition, VMI is not a recently developed philosophy. VMI was initially proposed by Magee (as cited in Disney & Towill, 2003), in his introduction of a conceptual framework for planning a production control system. VMI exists in many dissimilar forms Well-known names are synchronised consumer response (SCR), quick response (QR), continuous replenishment (CR), rapid replenishment (RR), efficient consumer response (ECR), centralised inventory management, and collaborative planning, forecasting and replenishment (CPFR), the phraseology depending on scope of implementation, ownership issues, and sector application (Disney & Towill, 2003).
The liability for controlling the inventory is at the client's premises clearly lies with the producer in the VMI supply chain. VMI has the benefit that on-schedule delivery does not require to be tracked because for as long as there is inventory availability at the product distributor, nobody concern (comprising the end user) if a delivery is let slipped. As a matter of fact, it is unlikely that the distributor would even realize if a delivery is on schedule, as the distributor does not even produce orders to contrast against shipments (Disney & Towill, 2003).
VMI has an additional distinct benefit over the conventional supply chain; VMI aligns the essential measures of capability needed in the VMI supply chain to the client expectations. In the VMI supply chain, there are only two measures are significant, are how much stock there is in the supply chain and whether there is a lost deal as a result of stock-out at the distributor, because this affects the costs to the end users (Disney & Towill, 2003). VMI requires generally only roughly 50 per cent of the stock holding in the supply chain and can remarkably enhance the dynamics of supply chains. VMI can be of great reward to the supplier or vendor in a VMI relationship if they properly utilize the sales and inventory information in the inventory control and production decision-making process (Disney & Towill, 2003). Dell has minimized their inbound supply chain with their VMI model and thus gets to lower its inventory management and logistics cost greatly (“Inventory Management Concepts”, n. d.).
3.0 Problem / Challenges / Issues
Many corporations have automated their inventory management operations and depend on an information system in important decision making. But, if the information is imprecise, the capability of the information system to offer high availability of goods at the minimal operating cost can be compromised (Kang & Gershwin, 2005).
Small ratio of inventory loss undetected by the information system can result in inventory inaccuracy that interrupts the replenishment process and cause severe out-of-stocks. As a matter of fact, income losses because of out-of-stocks can far outweigh the inventory losses themselves. If system is operating in lean environments, this sensitivity of performance to the inventory inaccuracy becomes even higher (Kang & Gershwin, 2005).
Without inventory control if excess inventory presences, it is considered as an indicator of many potential issues. Common issues involve production imbalances, long setups, product defects, equipment downtime, and defective or late deliveries. Related costs with excess inventory influence the corporation's business strategy. A general mistake made by corporations is to assess performance against historic measures or other criterion, which is not necessarily appropriate (Taylor III & Asthana, 2016).
Overproduction is considered as the most serious waste as it stops a smooth flow of services or goods and is likely restrain productivity and quality. Such production also tends to result in excessive storage and lead times. As a result, defects may not be discovered early, artificial pressures on work rate may be caused and products may deteriorate.
The unnecessary waiting time occurs when time is being used ineffectively. In a plant setting, this issue occurs whenever goods are not being worked on or moving. This issue influences both workers and goods, each spending time waiting. The ideal situation should be no waiting time with a result of faster flow of goods. Waiting time for employees may be utilized for training, maintenance of machines, or Kaizen activities, and should not lead to overproduction (Hines & Rich, 1997).
4.0 Descriptions of Downloaded Video & Video Attachment
4.1 Toyota Production System – 5S, Just in Time, Kaizen
Toyota is a name associated with quality, is considered by many to be one of the world's greatest manufacturers. This worldwide reputation is based on a specific way of manufacturing for Toyota Production System (TPS), which is created to benefit Toyota's customers, employees, and products.
TPS is an expression of the Toyota way, a philosophy containing five core values, namely: Genchi Genbutsu, Kaizen, Challenge, Teamwork, and respect. These values are practiced and shared by all Toyota team members at every level in their daily work and relations with others. The origin of this philosophy was first conceived by Sakichi Toyoda who invented the first automatic weaving loom, improved versions of these looms would stop themselves automatically for thread broke, so the product quality could be maintained and waste avoided.
However, the true architects of TPS is Taiichi Ohno, who in the early nineteen fifties drew inspiration from American supermarkets, he marveled at the way the shelves were hardly ever empty because they were restarts so quickly, customers can choose the exact products they wanted in the exact quantities they wanted. Today, this is called supply on demand manufacturing, also known as lean production. This means that the productions process will only be launched after the customer has placed an order. Once the production commences, parts arrived just in time at the factory and on the production lines and the suppliers are regulated in accordance with the exact production requirements. Just in time plays a key role supporting the Toyota Production System.
On the production lines, Kanban cards are employed to replenish parts just in time when stocks become low. The time it takes to produce a component or a truck is recorded and these are called tact times. These times and work cycles are carefully monitored, then coordinated through detailed scheduling called Heijunka. Heijunka is refer to a technique to accelerate Just-In-Time (JIT) production, detecting and holoding the average production volumes, and is exercised to smooth out operation in all divisions (“Heijunka”, 2013). Heijunka ensures that production lines run smoothly without interruption even when different products are being manufactured simultaneously on the same production line.
TPS is all about creating efficiency even wasteful processes and time lost, the name they are called Muda. One of main objectives of TPS is to reduce and eliminate all Muda, so the time and production are managed with maximum efficiency in a way that does not overburden an individual, a workforce, or a machine. In consequence, all workers can concentrate on their tasks and deliver better quality products.
4.2 Four Principles Lean Management – Get Lean in 90 Seconds
Lean is a philosophy about delivering value from the customer perspective, eliminating waste, and continuously improving the processes. Lean can radically change the way corporations do business. Lean management is based on four principles.
The first principle is pull, rather than producing as much as possible, customer demand pulls goods or services through the manufacturing process, and this minimizes its overproduction, inventory, and ultimately working capital. The second is one-piece flow, focusing on one single piece at a time, minimized its work in progress, process interruptions, lead, and waiting time while increasing quality and flexibility.
The third is takt, it's the heartbeat of a lean system. It's how fast manufacturers need to manufacture a product to meet customer demand. Takt allows corporation to balance work content, achieve a continuous flow, and respond flexibly to changes in the marketplace. The fourth is zero defects, mistakes happen but a lean company doesn't pass on defects, mistakes from previous steps must be fixed before going on.
Combined with the robust continuous improvement process, the four principles of lean management will help company to stay ahead of the competition in a constantly changing marketplace.
4.3 Vendor Managed Inventory (VMI): Three Keys to Success
Vendor managed inventory (VMI) is a brilliant concept in theory but in reality few companies are able to realize its full potential at its best. VMI creates a mutually beneficial relationship between a customer and its suppliers, one that maintains the optimal availability of inventory at the lowest possible cost. Unfortunately, that mutually beneficial part is pretty hard to come by too often, either the customers happy or the supplier is unhappy or the other way around.
With VMI, a supplier assumes the role of inventory planner for the customer, instead of the customer reordering with inventory has been exhausted. The supplier stocks and replenishes and more appropriate times and levels. There are many different flavors of VMI, but ultimately VMI should reduce stock-outs for the customer and give the supplier a more predictable flow of business, which means less risks and lower costs for everyone. However, most organizations don't invest enough in three keys areas to ensure VMI success.
Firstly, both parties setting clear expectations don't let disappointing short-term results put an end to an otherwise successful long-term relationship. Secondly, all parties sharing information in real time. All parties need visibility of production schedules, shipments, consumptions levels, and not just forecasted, but real sell-through demand, agree on what information is needed to maintain a steady flow of goods and automate the process. Finally, collaborating on an ongoing basis, investing in collaborative execution to enable rapid intelligent response to change based on the collective brainpower of the entire trading partner community.
5.0 Discussion & Conclusion
Inventory health is an excellent indicator of a corporation's financial index. Unbalanced inventories result to corporation disorder in the form of not sufficient inventory to restock shelves, or far too much inventories. Both conditions can be devastating to firms' incoming earnings. Tracking with inventory software for small and medium enterprise (SME) is a proactive manner to determining what areas need advancement. A variety of elements results to superior inventory management, comprising continual analysis of inventory turnover, supply, and demand (Trujillo, 2013).
Instating an inventory team is one of the manners that can be employed; contemplate establishing a team committed to making purchasing decisions. An individual from marketing department would be a precious addition as they identify about upcoming events that could result in a demand for supply. External elements have an influence on inventory levels and should be considered when allocating an order. For instance, a corporation can establish a cross-functional team which including of personnel in a variety of characters, it involving production planning, purchasing, sales, and logistics to occasionally evaluate obsolete inventories (Trujillo, 2013).
Holding up-to-date accounting documents of the inventory account assists enhance inventory management control. Precise inventory documents of the quantities of inventory on hand at any given period are vital in managing and controlling inventory. Organizations may employ either the periodic inventory system or perpetual inventory system to keep their inventory records (Way, n. d.).
A separate purchase account is employed to record inventory purchases, and inventory report indicates only the ending or beginning balance in the periodic inventory system. The periodic inventory system needs a physical count of ending inventory to help identify the quantities of inventory used during the period. Under the perpetual inventory system, inventory uses and purchases are directly recorded in the inventory account as minuses and pluses respectively, offering a corporation uncomplicated access to inventory information (Way, n. d.).
In addition to that, corporations should select their supply chain partners carefully. Not merely for the product, but for the connection the corporation has with wholesalers, manufacturers, or suppliers. Connections with suppliers can be crucial to receiving the goods on schedule and in the condition corporations need them. Select a supplier that the corporations truthfully feel pleasant with to obtain a good response (Gilliam, 2015).
One of the best practices for successful inventory management is categorize inventory. Dividing the wheat from the chaff, or in this instance, dividing the “stock” from the “stuff”, (differentiating the most high value products from inventory that's lower value) is one significant procedure towards more effective inventory management.
ABC analysis is one of the most general methods for categorizing inventory, many major inventory management programs like Microsoft Dynamics, SAP, and even QuickBooks assist it. ABC analysis identifies that not all items in the inventory are equally essential. The objective of ABC analysis is to ensure that the most important items are constantly available and to optimize the use of warehouse space. More space should be used on the products that are most in demand and less important items should take less space (Selsky, 2015).
Many companies employ inventory consultants outside the organization to manage and develop internal inventory systems. Inventory consultants are accountable for cycle counting, maintaining accuracy, shipping and receiving, and supervising order-picking operations (Scott, n. d.).
In addition, many organizations launch a tracking system to control inventory and keep an eye on turnaround times. Inventory tracking system formats range from computer programs to spreadsheets. They offer complete inventory control allowing organizations to take cycle counts in stock rooms or distribution centers and organize item levels (Scott, n. d.).
Barcodes are the best approach to keep human errors at minimum and response the question of how to enhance warehouse inventory accuracy. With each item having a barcode label on the item, picking, packing, and shipping are uncomplicated as individuals understand they are managing with the same item that's on the order. A barcode assists workers to identify the right products from the time of picking to dispatching (Krish, 2016).
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