Purpose of Inventory Management

INVENTORY MANAGEMENT must tie together the following objectives ,to ensure that thereiscontinuitybetweenfunctions: •Company’sStrategicGoals •SalesForecasting •Sales&OperationsPlanning •Production&MaterialsRequirementPlanning. Inventory Management must be designed to meet the dictates of market place and support the company’s Strategic Plan .The many changes in the market demand , new opportunities due to worldwide marketing , global sourcing of materials and new manufacturing technology means many companies need to change their Inventory ManagementapproachandchangetheprocessforInventoryControl. Inventory Management system provides information to efficiently manage the flow of materials , effectively utilize people and equipment , coordinate internal activities and communicate with customers .Inventory Management does not make decisions or manage operations, they provide the information to managers who make more accurate andtimelydecisionstomanagetheiroperations. INVENTORY is defined as the blocked Working Capital of an organization in the form of materials .
As this is the blocked Working Capital of organization, ideally it should be zero. But we are maintaining Inventory . This Inventory is maintained to take care of fluctuations in demand and lead time.In some cases it is maintained to take care of increasingpricetendencyofcommoditiesorrebateinbulkbuying. Traditional Supply Chain solutions such as Materials Requirement Planning , Inventory Control , typically focuses on implementing more rapid and efficient systems to reduce the cost of communicating information between and across the Inventory links in the SCM. COM focuses in optimizing the total investment of materials cost and workload for every Inventory item throughout the chain from procurement of raw materials to finished goodsInventory . Optimization means providing a balance of supply to meet the demand at a minimum total cost , Inventory level and workload to meet customers service goal for eachitemsinthelinkofInventoryChain.
It is strategic in the sense that top management sets goals . These include deployment strategies ( Push versus Pull ) , control policies , the determination of the optimal levels of order quantities and reorder points and setting safety stock levels . These levels are critical,sincetheyareprimarydeterminantsofcustomerservicelevels.Keeping in view all concerns , the latest concept of Vendor Managed Inventory is used to optimize the Inventory . We are entering into Vendor Managed Inventory , Annual Rate Contracts with manufacturers or their authorized dealers , who maintain Inventory on our behalfandsupplytheitemsasandwhenrequired. VMI reduces stock-outs and optimize inventory in supply chain . Some features of VMI include: •ShorteningofSupplyChain •CentralizedForecasting •Frequentcommunicationofinventory,stock-outsandplannedpromotions • Trucks are filled in a prioritized order , e.

. items that are expected to stock out have top priority then items that are furthest below targeted stock levels then advance shipments of promotionalitems Despite the many changes that companies go through, the basic principles of Inventory Management and Inventory Control remain the same. Some of the new approaches and techniques are wrapped in new terminology, but the underlying principles for accomplishing good Inventory Management and Inventory activities have not changed.The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers. Inventory Management and the activities of Inventory Control do not make decisions or manage operations; they provide the information to Managers who make more accurate and timelydecisionstomanagetheiroperations.The basic building blocks for the Inventory Management system and Inventory Control |activities | | | |are: | | | | | | | |Sales | | | |Management | | |Forecasting |or |Demand | | |Sales |and | |Operations |Planning | |Production | | | |Planning | |Material | |Requirements |Planning | |Inventory | | |Reduction | The emphases on each area will vary depending on the company and how it operates, and what requirements are placed on it due to market demands. Each of the areas above will need to be addressed in some form or another to have a successful program of Inventory ManagementandInventoryControl.
Inventory is usually a distributor’s largest asset. But many distributors aren’t satisfied with the contribution inventory makes towards the overall success of their business: The wrong quantities of the wrong items are often found on warehouse shelves.Even though there maybe a lot of surplus inventory and dead stock in their warehouse(s), backorders and customer lost sales are common. The material a distributor has committed tostockisn’tavailablewhencustomersrequestit. • Computer inventory records are not accurate. Inventory balance information in the distributor’s expensive computer system does not accurately reflect what is available for saleinthewarehouse. • The return on investment is not satisfactory.
The company’s profits, considering its substantial investment in inventory, is far less than what could be earned if the money were invested elsewhere. ———————– [pic]