Inventory Management

1 January 2017

Companies must predict which products customers will purchase along with determining what quantity of goods will be purchased. The company will in turn produce enough products to meet the forecast demand and sell, or push, the goods to the consumer. Advantages : The company is fairly assured it will have enough product on hand to complete customer orders. This prevents the inability to meet customer demand for the product. Disadvantages : If too much product is left in inventory, it increases the company’s costs for storing these goods. An example of a push system is Materials Requirements Planning, or MRP.

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MRP combines the calculations for financial, operations and logistics planning. It is a computer-based information system which controls scheduling and ordering. Its purpose is to make sure raw goods and materials needed for production are available when they are needed. Pull System The pull inventory control system begins with a customer’s order. With this strategy, companies only make enough products to fulfil customer’s orders. Advantages : There will be no excess of inventory that needs to be stored, thus reducing inventory levels and the cost of carrying and storing goods.

Disadvantages : It is highly possible to run into ordering dilemmas, such as a supplier not being able to get a shipment out on time. This leaves the company unable to fulfil the order and contributes to customer dissatisfaction. An example of a pull inventory control system is the just-in-time, or JIT system. The goal is to keep inventory levels to a minimum by only having enough inventory, not more or less, to meet customer demand. The JIT system eliminates waste by reducing the amount of storage space needed for inventory and the costs of storing goods. Push-Pull System

Some companies have come up with a strategy they call the push-pull inventory control system, which combines the best of both the push and pull strategies. Push-pull is also known as lean inventory strategy. It demands a more accurate forecast of sales and adjusts inventory levels based upon actual sale of goods. The goal is stabilization of the supply chain and the reduction of product shortages which can cause customers to go elsewhere to make their purchases. With the push-pull inventory control system, planners use sophisticated systems to develop guidelines for addressing short – and long-term production needs . List atleast eight performance measures for warehouse management A warehouse is a commercial building for storage of goods. A warehouse management system, or WMS, is a key part of the supply chain and primarily aims to control the movement and storage of materials within a warehouse and process the associated transactions. The following activities are common in any warehouse: a)Receiving b) Put-away c) Order picking d) Storage e) Shipping The eight performance measures for warehouse management are : 1.

Service Level : Shipment Service Level (% of Lines shipped on time) Service Level (% of inbound lines put away within time limit) 2. Space: % of space occupied vs. % accessibility Warehouse capacity use rate % = No. of palets stored in warehouse / warehouse capacity in palets no. 3. Inventory: Inventory turnover ratio Inventory Accuracy 4. Productivity: Productivity (Measured in terms of lines picked per hour worked) Number of SKUs picked per hour 5. Quality: Quality in terms of errors per thousand lines shipped. Errors in dispatches

Ware housing discrepancies = Products lost value (at cost) / total products shipped value (at cost) 6. Cost: Cost of warehouse operations Storage cost per item Cost of picking per order Cost of shipping per order 7. Cycle Time: Time taken to process a receipt. Time taken for each put-away. Inventory days on hand. Order Pick cycle time per order. Shipping time 8. Utilization: Receiving Dock door utilization % Utilization % of labour and equipment % Location and cube occupied Picking labour and equipment utilization % Utilization of shipping docks in % . What features would make an ideal supplier? Timely delivery: A good supplier is someone who keeps up to timely delivery of goods and supplies. Delayed supplies leads to business losses to the immediate customer and in turn delayed delivery to the end customer. This also opens up avenues for other secondary systems like buffer inventories to keep the chain going in addition to increasing overall costs. Competitive price: Business owners and suppliers add the cost of purchasing materials for a product into its retail price making it costlier.

A reduction in this cost will lead to a reduction in the cost of the product as well. Quality: Quality is a very important aspect in determining a good supplier. Providing ultimate customer value is an important objective of business. Minimal paper work: From the placing of an order to the actual buying of an order involves a ton of paper work. A good supplier will find ways of reducing the amount of paper work involved. Quick response/ turn around time: The world of business is highly unstable, and often the gap between demand and supply can be hard to predict.

A good supplier will always be prepared to meet such a contingency. Again a frequent and smaller quantity of supplies is the key to eliminating this gap. Inspection of goods: Inspection of goods is a time consuming activity for both the supplier and the buyer. However quality assurance of the goods can again reduce the time spent on inspecting the goods. Taking care of wear and tear and transport damage: Transportation and delivery often involves a lot of wear and tear and a good supplier is someone who recognizes these limitations and takes proactive steps to help reduce or avoid the damage involved.

Constant frequency of delivery: If a supplier can keep to supplying goods at constant and smaller frequencies, then the cost advantage is supplemented. Meaning, if a product or part is found to be defective, then the time spent in replacing it is minimal as opposed to having to replace a whole carton or shipment of that item since the delivery is frequent and the supply chain is actively functioning. This is not only cost effective but is also a time and space saver.

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