Inventory Management Essay
Companies often suffer because they are unable to meet demands due to a shortage of inventory or from large, expensive inventory maintenance costs. Problems occur due to uncertainties and lack of coordination between the company and its suppliers, partners and customers. Demand can be influenced by prices, competition, weather, fashion trend, technological developments which leads to uncertainties in forecasting demand. Uncertainties also exist in delivery times, quality of raw materials and parts.
Factory floor is not just involved in the production and manufacturing of goods but in activities that see to the flow of raw material from the raw material factories through factories and warehouses to the production floor, purchasing, material handling, production planning and controlling, logistics, inventory control and quality assurance. Right level of inventory has to be maintained that is promptly delivered. Internet access will enable the factory floor to have access to useful and relevant information. The employees will have access to operational data that will be concise and relevant.
The data will be shared across the organization. New and additional information will be readily available which will give them the insight to the external environment including information about the competitors. One of the most significant changes would be that there will be faster accessibility to all the required information. Availability of correct information will help managers to predict, speculate, forecast and estimate demands and trends. Based on these speculations planning for production is done. According to the planning, ordering, purchasing and using of resources like raw material, capital and labor is chalked out.
This will cut down on most of the uncertainties faced by companies. The main problem for any company is determining inventory levels which must be done accurately for each and every product and part. Too high inventory levels raises costs and low levels may lose customers as there might be lead times. E. g. Littlewoods Stores in Britain was able to eliminate $17 million of overstocked inventory by using Web. Better inventory management led to the reduction of the need to liquidate stock which saved the company $1. 4 million (www. microstrategy. com, 2000)
Real time collaboration and enhanced communications would help all employees within the organization to coordinate matters more easily. Better collaboration can save the industry $40 billion annually (cited in Konicki, 2002). Customer complaints will be delivered to the production floor on time and immediate steps will be taken. This will help the factory floor to raise the quality of goods, reduce scrap wastage and errors. A proactive approach rather than a reactive approach can be taken. Goods can move on time from suppliers to the production floor to the customers.
Better communication would also mean that coordination with suppliers will be improved greatly. Production scheduling can be done more efficiently. Communication can be done via electronic mails, transfer of files, a call for a meeting, commenting on a news group, conferencing etc. During peak demands if the factory floor is unable to meet rising demand it will be able to judge which products it should outsource. Better buy or make decisions can be made. Better communication with suppliers will enable the company to use a just-in-time (JIT) approach by strengthening its ties with a few suppliers who will make prompt delivery of raw materials.
The factory floor can also keep a system that will automatically warn the production unit if the inventory falls to a certain level. Automatic placement of order with the suppliers can be made which will reduce the lead time. Intermediaries will be reduced which will help the factory floor to cut down on the costs. Manufacturing can start once the order is placed by the customer like in the case of Dell. Training costs can be cut down on. E. g. a new machine has come in an ice-cream factory which can simultaneously produce 5 different varieties.
Employees can be given instructions and a demonstration can be shown online Enterprise Resource Planning (ERP) promises benefits from increased efficiency to improved quality, productivity and profitability (cited in Umble and Umble, 2002). This integrates all departments and fuctions in an organization into a single system and hence caters to the organization need. It enhances competitiveness by integrating information on finance and accounting, human resource, operations supply chain, and customer information (Turban, Aronson, Liang, 2006 p. 72)
An enterprise portal can be used to integrate the internal applications such as the database containing information on the number of raw materials available for the production of bikes with external applications such as supplier websites etc. Information in this manner can be distributed efficiently and effectively. It will help form a link between the production floor, suppliers, customers, retailers and partners. This is particularly useful if the company is involved in cross selling and is operating in more than one city or country.
Diageo plc, a beer and alcohol manufacturer was able to save $1. 1 million in inventory reduction and $600,000 in logistics through accurate forecasting of sales Hence inventory management is extremely important as it can bring breakthrough results within an organization. It gives a competitive edge to the companies as it slashes the costs down by providing a tighter control on inventory stocks. In this fast moving, fiercely competitive world internet has become a necessity and organizations must get technologically advanced to survive and compete.
University/College: University of California
Type of paper: Thesis/Dissertation Chapter
Date: 7 November 2016
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