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Abstract
of Inventory Management in Manufacturing
Organizations
Several organizations always focus
to manage their resources to grow their business by reducing their time on the
production, minimizing their cost on every product as well as increasing the cost-effective
production. It can be difficult task for many companies because the manual systems
are not very effective to management all types of resources of the company as
well as the manual system to manage the resources of the company can make the
growth of the company challenging. To overcome from such types of challenges, the
inventory management software application is proposed for organizations that
has the ability to manage the resources of the company in very effective
manners. The inventory management has three types which are discussed further
in the document below. The inventory management software can effectively
analyze expenses, sales as well as all kinds of the financial reports. By the
use of such inventory software applications also have the ability to make the
business of the company grow as well as effective to increase the profitability
of company by generating high customer satisfaction.
Introduction of Inventory Management in Manufacturing Organizations
Every company in the world is now
focusing to manage their inventory as well as the data of company for the
better management. It is because the inventory management is very important as
well as very effective to provide help companies and their business development
teams to grow the business by managing and using their resources in the
effective way. The document is providing the brief information about the inventory
management system as well as how the inventory management system can be helpful
to increase productivity including profitability of the organization.
The
inventory in the organization refers to the raw materials, the working
performance and progress under the stages as well as the finished products. In
this document, all of the important information of the inventory management
system is provided including the classification. The inventory management
system is very important for every organization and some of the important things
are also included in this study. In the importance of inventory management
system, the system is used into the organizations to improve the accuracy of production
process, to keep the inventory products organized with the improved strategies,
as well as to save the monetary resources of the organization and better
management of time.
There
are three types of inventory management provided in this document which are: Bar-code
inventory management, periodic inventory management as well as continuous
inventory management. Some significant inventory management as well as inventory
control system are also discussed. The inventory management system has some key
challenges which are provided in this document. The proposed solution to manage
the inventory items of the company is to introduce the inventory management
software that has the ability to manage the resources, analyze the finance of
the company including profits and consumptions of the company. The system has
also the ability to maintain the supply as well as to estimate the risks.
Inventory Management
in Manufacturing Organizations
The contribution of any product is required to be measured in
social welfare, although it is important at the same time it is a difficult
process to be carried out. Production is a process of fabrication of any
physical object such as equipment, material, solids and liquids. Inventory
define an accounting term that refers to the products that undergo through the
multistage for the final product to be ready for sales. Inventory is a number
of products that are stored by the production sector with the intention of
resale, raw materials and other components
The inventory contains items at different stages such as
finished goods (to be sold), work in progress (under the stages) and raw
material (to be used for the goods). In the production and economy system,
inventories are considered as major components of consideration such as
management, planning, and control for the achievement. The basic aim of keeping
inventories is to minimize the cost of the product up to the acceptable
investment levels and to provide desired levels of customer services. Keeping
well managed and maintained inventory helps in decoupling the demand and supply
by developing a buffer stock and build up the anticipation stocks that meet expected
and planned demands. For instance, the computer manufacturing company keep
motherboard in the warehouse to be used in the next assembling process
Inventory is mainly the sum of all items that can be used in
the business. Inventory consists of material that is directly related to the
manufacturing process and it includes items that are most likely to be sold and
the items that are intended to sell in the future. On the basis of conditions
and types, inventory can be classified into two main types including
merchandise inventory and manufacturing inventory. Merchandise industry
consists of trading goods that are held by the trader
On the other hand, the manufacturing inventory is further
sub-categorized in five main types including raw material, work in progress,
finished goods, packing materials, and manufacturing inventory. The further
classification includes different bases that are goods in transit, decoupling
inventory, buffer stock, anticipatory stock, and cycle inventory
Most of the raw material is kept in defined places for the
later use. Some other types of inventories are goods in transit, buffer
inventory, anticipatory inventory, decoupling stock, and cycle inventory
Figure
1: flowchart defining types of inventories
Inventory
control and management is a process of keeping accurate and proper records of
all the items in the warehouse. Inventory control is related to consider where
the inventory is and how to travel to the exact location for timely
manufacturing of the finished products. Proper inventory management fits all
considerations in the bigger picture. This considers the cost of carrying and
purchasing the rate material and cost of inventory processing. Inventory
control is basically logistic and organization of the inventory that is
operational
1.
To
improve the accuracy of the production process and to fulfil the cycle.
2.
To
keep the items organized in the space with a maximum effective strategy.
3.
To
cut down the waste by considering the transportation time to bring items and
carrying costs.
4.
To
save money as well as time and it helps in improving the production process and
lower the time required for production.
Inventory
management aligns the types of inventories and combines them in an effective
and creative way to finish the products and deliver to customers with
increasing customer satisfaction. The other benefits of inventory management
are saving money, resources, and time by lowering the stress levels. The
positive outcomes ensure 100% customer satisfaction by providing services in
the estimated time
1.
Proper
inventory management can improve feasibility for the organization and improve
through efficient and effective management of the resources.
2.
Inventory
management control system provides adequate use of the materials at the optimum
level of material investment.
3.
Management
ensures that any action taken from the procumbent of the resources is accurate
and prevent from stock running out.
4.
Inventory
management minimizes loss and maximizes wealth. While the maximization of the
wealth can be obtained from the fulfilment of stockholder interest.
5.
Effective
inventory controls are essentials to maintain the cost of products and to help
in increasing the return rate on the investment
The approach of inventory management is to keep track of the
flow of inventory. Initially, it considers the procurement of products,
warehouse, and continues to keep the records of inflow and outflow of the raw
material to reach the requirements of manufacturing units. The process can be
completed in different ways such as automated methods and manual system
The inventory management considers different forms of inventory
along with the critical selection of optimized storage practices. However, the
simple classification of inventory management is illustrated in figure 2.
According to this classification, inventory management can be categorized into
three types of inventory management including continuous inventory management,
periodic inventory management, and bar code inventory management
Figure
2:Types of inventory management
1.
Continuous
inventory management
In
the case of continuous inventory management, it provides a link between
radiofrequency and barcode identification. The identification of items by
radiofrequency and barcode system helps in keeping digital records. The other
types of information stored by this system are the point of sales, accounting
inventory system, traces of the path, tracking inventory movement, and
inventory received. This type of management is highly beneficial for the
digital accounting process. Such kind of inventory management is perpetual
inventory management
2.
Periodic
inventory management
In
the periodic inventory management, the process is used to determine the closing
value of the inventory. This process use ledger at the end of each financial
year. Such kind of inventory management depends on the need for organization
and analyzed quarterly. The process is, however, time consuming because each
item in the inventory is counted physically
3.
Bar
code inventory management
The
bar code inventory management system is the simplified and digital version of
keeping records of the items. This system provides information about the recent
number of items and stock remaining in the inventory through a single click on
the computer device. The computer based software is used in the process that is
enabled by the scanning of barcodes and maintain the track of all the flow of
inventory, purchasing, and sales
Inventory
management is an essential process and system in the manufacturing companies to
keep the inventory handling cost under the control of an organization as well
as to ensure availability of inventory at the desired level which does not
increase inventory handling cost for the organization. In this section, key
objectives of inventory management system in the manufacturing organization are
stated. While working on inventory management system, inventory managers
consider the following objectives in their mind.
i)
To keep
control on the continuous supply of raw material and finished goods inventory
in the organization (or outside the organization) to keep production system
unaffected from the irregular or excessive inventory demand or supply at any
stage.
ii)
To ensure
the elimination of duplication in replenishing stocks or ordering stocks. Inventory
management team work on it by taking the help of centralizing purchases.
iii)
To keep
balance in the stock-level while avoiding the situations of under-stocking of
inventory and over-stocking of inventory.
iv)
To maintain
the funds invented in the inventories at the optimal level as required by the
activities done in operational departments and sales department of a
manufacturing organization.
5.
Example
of Inventory Management
In this section, ant example is shared for the inventory
management systems in the manufacturing organization. Inventory management
system is highly important in an organization however when it comes to the manufacturing
sector its importance automatically increases. In manufacturing organization,
profit margin and company’s reputation directly depend upon the efficiency and
effectiveness of inventory management employed in the organization. For
instance, if a football manufacturing company “ABC Football” fails to
management optimal inventory level in the organization then they will have to
face financial issues.
Take the example of under-stocking. In case of insufficient inventory
available in the warehouses ABC Football Company would not be able to meet a
new order quickly. They would have to manufacture required level of inventory to
meet the market order. Moreover, it is also possible that while fulfilling the
order of a new client they face disruptions to meet the regular orders because
of shortage of inventory available to sell in the market.
However, in case of overstocking, company would be able to
meet such new orders immediately which will benefit in monetary terms. But in
the main time, excessive inventory handling will cost more inventory handling
cost then it was required. Moreover, inventory damages and other uncertainties
are also associated with such inventory handling practices. Consequently, it
can be said that ABC Football Company does not afford to keep understock of
inventory or overstock of inventory. Although, company need proper inventory
management system that keep an optimal inventory level in the organization
while considering the probability of uncertainties and new orders from the market.
Inventory management and inventory control systems are two
different terms with almost similar activities. Inventory and stock both are
similar to each other. Inventory management and inventory control both terms
can be used interchangeably. However, unlike with inventory and stock, equating
inventory management and control is inaccurate. The term inventory control is
mainly used to represent one part for the broader inventory management
discipline. In other words, inventory control is an activity to be done in the
inventory management systems. Inventory control is mainly about getting
knowledge of where the whole or partial inventory is place and ensure the inventory
traveling to the right place in the organization or outside the organization. In
inventory control systems, employees working on this duty find a suitable place
to store inventory and keep records of timely manufactured finished goods
inventory in the manufacturing organizations.
Somehow, the term inventory management is a representation of
big picture about inventory handling, keeping, and transportation. Inventory
management also consider cost of inventory management and handling. For
instance, how much a manufacturing company will cost for the shipment and freight
of inventory. Moreover, inventory management also consider the overhead
processing cost for inventory and finished goods in an organization after the
manufacturing process is complete. Furthermore, inventory management is also
concerned with the production efficiency rather than focusing on logistics
only. It makes sure that inventory level and inventory handling systems all
fits in the business plan and align with success metrics.
Consequently,
inventory management system in an manufacturing organization include activities
such as order fulfillment cycle, improving accuracy of manufacturing cycles,
inventory organization, inventory space management, cutting down cost on waste
concerned with inventory (e.g. carrying costs, and transport time), and
improving production time for the finalization of finished goods in the
inventory of a manufacturing organization. Therefore, relating inventory
management to inventory control system we can say that inventory control system
is a step or level in inventory management if we develop a hierarchy of to be
done activities in the inventory management process.
Inventory management in manufacturing sector is more crucial
and difficult as compared to inventory management practices in ecommerce and retailing
sector. In the manufacturing organization, inventory is not limited to finished
goods inventory or ready to sell inventory goods only. The raw material and
in-process goods are also included in the inventory management system of manufacturing
organizations. While on the other hand, in retailing and e-commerce sectors,
organizations are only concerned with the availability of required ready-to
sell inventory or product stock in general terms. For instance, an organization
of manufacturing Footballs will have to manage inventory of raw materials (e.g.
fabric, dying colors, stitching treads), in-process inventory (e.g. football
which are partially completed and require more work to be shifted in the ready
to sell inventory warehouse), and finished goods inventory (e.g. football
packed and labelled). However, a retail or ecommerce website selling that same
footballs will have to manage inventory of ready to sell footballs only
Retailer and e-commerce websites are required to just keep
the records of available inventory and ensure availability of required
inventory level in their stock and warehouses. Furthermore, inventory
management team in the manufacturing sector also liable to keep calculating of
cost associated with inventory at each stage of supply chain. Somehow, in
e-commerce and retailing sector, inventory management team (also known as stock
handling team) will keep records of purchase order and warehouse cost to
calculate inventory management cost. Additionally, retailers or e-commerce
website no longer take interest in the inventory level of a manufacturing company.
While on the other hand, manufacturing companies take interest in the available
inventory levels and inventory sold records of e-commerce websites and retailer
for their selected products to understand demand trends in the market and to
keep running their production system in accordance with the forecast of
required inventory in future by the retailers and e-commerce websites.
Inventory
management process in manufacturing sector is full of challenges. Uncertainties
and forecasting errors draw huge impact on the financial outcomes of the
manufacturing organization. Although, challenges are also linked with carrying
the optimal level of inventory in the warehouses. Inventory management
challenges section of this report is consist of several important challenges
associated with the inventory management practices in the manufacturing
organizations. See the following list of key challenges linked with the
inventory management process which are required to be considered by the
inventory management or handling team for keeping inventory cost at minimum
possible level and avoid disruptions
1)
Maintaining
Optimal Inventory Levels
Managing optimal inventory levels in the manufacturing companies is very difficult as it also depends upon other external environmental factors as well. For instance, supplier of raw materials also influence the situation of raw material inventory in an organization. In order to keep optimal level of raw materials in the manufacturing company, inventory management team is required to collect raw material within tine. However, sometimes supplier’s delay the delivery of their orders as result of which they cause challenging situation for the inventory management team in a manufacturing organization as production process directly depends upon the availability of required raw material. The unavailability of raw materials because of a delay by supplier may cause a huge loss to a manufacturing organization or they may have to take material from another supplier at relatively higher prices because of immediate need.
2)Misplaced Inventory Items
A common problem with an inventory
system design is a failure to include methods for cross-referencing the
locations of inventory items. Misplaced inventory items also generate
challenging situations for the inventory management team. Inventory management
team is not only required to control cost and ensure proper warehouse inventory
control but they also required to ensure the arrangement of inventory in the
warehouses of a company. For instance, a poor arrangement of available raw
material or finished goods inventory will create disruptions in meeting the
requirement of the manufacturing company. As a proper arrangement of inventory
reduce wastes of time and energy to secure a higher profit margin similar to
this misplaced inventory reduces profit margin for the overall business
operations because of increase in the inventory management cost. Thus,
misplaced inventory items is a key challenge for the manufacturing
organization.
Inventory
management team decide optimal inventory level based on the forecasted requirement
for inventory in future. Sometimes wrong estimation and inaccurate forecasting
can cause challenging situations in the inventory management. For instance,
underestimated requirement or demand of inventory will create difficulties for
the inventory management team to fulfill the internal (inter departmental
orders for raw materials and in-process inventory or external orders (market
demand for ready-to sell products).
Market
uncertainties such as artificial and natural disasters also influence the
inventory management process in the manufacturing organizations. For instance, delay
in the delivery of raw material because of road deranges caused by flood or
earth quack.
The
above stated challenges are critically linked with the financial outcomes and
profitability of the manufacturing organization. Appropriate inventory
management system result in the increase of probability for higher profit
margin. While similarly disruption and failed inventory management system are
critical for the profitability and reputation of the company. This section is
consist of some suggested solutions for the above identified challenges and
other common challenges in the inventory management system. Moreover, some
software are recommended for the manufacturing companies to keep inventory
management system appropriate and successful.
Manufacturing
organizations should keep up-dating their accounting records of inventory
account that can support them in improving inventory management and control
system in organization. Further, authentic and audited inventory cost calculations
can support them in identifying the processes and stages at which inventory
handling cost is required to be controlled.
Manufacturing
organizations sometimes ignore the importance of physical count while over
relaying on the use of inventory management software for record keeping.
However, an organization should ensure physical count as well for a clear idea
about actual inventory available in warehouses. Physical count will reduce
misunderstanding because of system error in inventory tracking.
The
primary objective of inventory management control is to determine and maintain
an optimal level of inventory, which helps free some investment capital and
reduce inventory holding and handling costs. Manufacturing organizations should
keep optimal level of inventory in the organization for production and to be supplied
in the market.
Inventory
quality should be also taken into consideration while keeping stock or
inventory in the warehouses. Products which can get damages should be kept at
the safe place in warehouses to avoid damages which can increase inventory
handling cost. For instance, a furniture making company should not keep glass
materials with wood and steel materials to ensure breakage and damages at
minimum levels.
To
avoid challenges related to delay in supplies of raw materials inventory
management team should ensure a continuous supply for the company. Suppliers
should be sent advance orders with flexibility of delay in delivery. Optimal
inventory management system can support in avoiding such hand to mouth
condition in manufacturing organizations.
Uncertainties
and risk factors should be considered while planning for the inventory supplies
and purchases. Weather conditions draw huge impact therefore management team
should keep into consideration about weather forecasts.
Although,
use of software can also make tracking and monitoring system easy for the
inventory management team. A suggested software for inventory management is
Optel. Optel software keep records in the cloud that can be easily accessed in
different areas of an organization while keeping records and viewing inventory requirements
in different departments for future use. Another suggested software for
inventory management are Ordoro and Fishbowl.
Conclusion
of Inventory Management in Manufacturing
Organizations
The whole discussion concludes that the most and critical process in any company or corporation is its inventory management. Inventory in the manufacturing organization is consist of three different types including raw materials, work-in process, and finished goods inventory. The managers of warehouses have to bear a lot of difficulties to get the best benefits from inventory. It may involve the functions from decreasing the cost of goods carried out and to make sure that the goods are enough to perform the job on its specific time. If the inventory managers are performing their jobs effectively it means for sure the company will succeed. Effective inventory management is a key term to produce huge profit. The benefits of the inventory management system are to improve the accuracy of the production process and to fulfil the cycle, to keep the items organized in the space with a maximum effective strategy, to cut down the waste by considering the transportation time to bring items and carrying costs as well as to save money as well as time and it helps in improving the production process and lower the time required for production. In the importance of inventory management system, the system is used into the organizations to improve the accuracy of production process, to keep the inventory products organized with the improved strategies, as well as to save the monetary resources of the organization and better management of time. It is also concluded that by the use of such inventory software applications also have the ability to make the business of the company grow as well as effective to increase the profitability of company by generating high customer satisfaction.
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