Inventory management Essay

Part bingle muniment Management and its role within the Supply Chain origin focal point is a method through, which a patronage handles visible resources and materials to encounter availability of resources for use. It is a collection of interdisciplinary bringes including a full round from the pray prognosising, t eachy scope steering, scrutinise control and reverse logistics. ancestry instruction is the optimization of inventories of manufactured goodishs, work in progress, raw materials, and opposite features of companies in line of battle to reduce storage be while providing a high level of service and smooth mathematical operations. Inventory centering in logistics is the optimization of operations directly related to the processing and registration of goods, and to the coordination with the procurance and sales service, it is the calculation of the optimal number of stores and their locations. Effective scrutinise management al petty(a)-spiriteds an or ganization to meet or exceed customers expectations.Several technical finishs of enumeration management models be incorporated by the pedigree management so as to achieve cleverness. Critical role of the pargonntage management is hence played by the concepts such as safety neckcloth, embody of goods, economic ordering quantity, customer managed strain, a vendor managed inventory, and the inventory turnover. The key principles of inventory management remain the same across all the industries however, some unfavor fit areas of emphasizing these principles may vary from one sector of business to another. Inventory management in the allow chain is a complex of contribute chain optimization techniques. This is a key element in the planning chain management.Experts emphasize companies attention on what constantly astir(p) efficiency in the sum up chain has become a grocery store necessary and prerequisite for competitiveness. Global trends for the largest industrial a nd commercial companies integration lead to the makeup of the global establishment with comprised supply chain, procurement, etc. That is why inventory management in the supply chain domiciliatenot be separated from the boilersuit system, a single logistics organism of the company. Information engineering can service to integrate the management of inventory in the supply chain. The purpose of the utilisation of information technology to manage inventory in the supply chain is to increase the efficiency of all processes. (Supply chain managementconsulting 2002)The grand conniption of the inventory management lies on the correct application of the right inventory management tools. Understanding of all the details of inventory management leads to the strong control of inventory. When lean practices are applied to all aspects of the inventory management cycle, this means that business can effectively reduce the investment in shipping be, plant rentals, reverse logistics, and s tanding inventory while improving or maintaining customer service levels in its overall performance. (Purchasing and Procurement Center, 2012). Therefore, inventory management is serious and need to be effected at all levels of business operations to keep the inventory levels stable and to exclude high-priced errors and inconveniences (Winsner, 2011).Part Two1. It is often elusive to square up reliable be of descent. With dearths this seems almost impracticable. Discuss how we can find toll of detriment of good well or rock-bottom future sales, and to what extent we can deplete reliable estimates for such be.Often, it is difficult to find reliable cost of stock because market factors such as famines come into place. The most big element, which essential come into place pertaining to this situation, is intelligence price. Intelligent pricing is an element, which pull up stakes keep in line a successful business venture, and without this business will not find relia ble be of stock. Before launching a untested business, it is incessantly important for entrepreneurs to have adequate knowledge about the various pricing strategies and components available. Market place factors ought to be weighted by the business owners originally prices of goods and function are set. Therefore, factors such as the market, competition and the distribution be need to be put in place so as to arrive at reliable cost of stock. In any psychoanalysis of the inventory management system several factors should be considered the demand forecast and delivery time, as well as the be associated with the system operation.The cost parameters must be considered as well. Firstly, the costs of holding reserves, which include the cost of dead capital in stocks,keeping costs and other costs associated with physical presence of goods in a warehouse. Secondly, order and reorder costs which includes the cost of placing an order, the cost of record-keeping, as well as the cost o f set-closing operation if the output is considered in batches. Another important indicator are the costs out-of-pocket to lack of or inability to meet demand(shortage costs), the costs due to changing nature of the products, production costs , as well as losses due to obsolescence or damage.Lets consider shortage costs in details. These are the costs associated with the occurrence of shortage and can show up in those object lessons when the product is required, but cannot be supplied because it is out of stock. The mend of shortage is wider than lost addition, as it involves the loss of image, goodwill and potential losses from the decline in the number of sales in the future. These costs may likewise include such payments for actions ,aimed at reducing the deficit, as freight forwarding, move a rush order, payment for special types of products, the usage of more pricey suppliers.Most companies believe that shortage is always expensive, so they try avoid it. In other words, they are willing to pay relatively low costs for stock keeping in order to avoid relatively high costs associated with shortage. These costs represent a penalty to be paid by the owner of an enterprise in case when the demand exceeds the supply. It is very difficult to ensure that demand will always be satisfied and, in addition, it is likely for a firm that such guarantees can be joint with extremely high costs.The shortage can be offset by emergency delivery, in this case, penalty is the difference amid ordinary value of product and the cost of emergency delivery. Sometimes shortage is offset by back-ordering, i.e. goods are delivered to the customer as soon as they come in stock. In this case, penalty is the loss of goodwill, this can arrogate customers manner in the future. In extreme case this shortage can lead to the loss of customer, then the penalty will include not only lost sales cost, but likewise losses of many customers in the future.Identifying shortage costs is exceptionally difficult task, and it does not purloin barely because the administration of an enterprise is not arouse in reduction of these costs. Direct shortage cost figures were obtained only in a few cases, and only with limited accuracy. One of the most importantelements of the intangible assets of the company is its goodwill. At the same time it cannot be say that the formation of goodwill and maintaining it at a high level is something new and unique for todays businesses. Goodwill represents the kind of good get wind of a company and is accounted in its intangible assets, a enormous with copyrights, know-how and trademarks. Goodwill may be either positive or negative. The positive goodwill of a company may help To add psychological value for products and services To attract new customers in case they have a cream in the midst of functionally similar products or services to bring a company more qualified employees and increase job satisfaction of an subsisting staff To increase the military capability of advertising and sales, to support distributors, advertising agencies, suppliers and business partners To raise funds on the stock market and survive in the event of a crisis. Any competitive producer knows that in order to gain the consumer recognition and profit, it is needed to invest primarily in itself. after(prenominal) all, a good name works better than any advertising. It is impossible to generate a goodwill from scratch. The company should enjoy really prodigious achievements and benefits which lay the foundation for goodwill. The process of generating a goodwill takes a long time and considerable amount of money. This is a long-run, very complicated process that cannot be insured against dangers, losses and risks. (Lean manufacturing and and operations management, 2012)One of the most important trends in recent years has been towards e-commerce. How does this affect inventory management? electronic Commerce is a type of trading, which applies the use of modern technologies such as mobile commerce, supply chain management, electronic funds transfer, internet marketing, electronic data interchange, online transaction processing, and inventory management systems among others. (Practical Ecommerce, 2010). Through the application of computerized technology in inventory management, business organizations are able to have a complete inventory description in real-time basis. Investing in e-commerce technology allows business owners to have a strong inventory management backed, which includes bar codes that allow streamlining of the inventory processes.A streamlined process leads to completed planning due to improved forecasting, product turnover leashto increase profits and better customer services. E- Commerce inventory management system also means that the business owner can substantially integrate with customers through various technologies such the internet and the smart phones. Through this, customers are a ble to access the available products and their prices and business owners will be able to place their products in the market with ease. Measuring of the inventory turns is also achieved by e-commerce with the use of the appropriate software and proper techniques. Therefore, more frequent inventory turns are achievable, and this boosts the profits.E-commerce is also applied in managing vendors, and maintaining good ties with vendors enables business owners to discuss favorable terms and conditions for business. Elimination of obsolete inventory in a timely manner is achieved through e-commerce as the seller can easily identify such inventory through real-time observation of the market changes. Inventory items are also reduced through e-commerce since business owners are able to keep just enough items because they know their market capabilities in real-time without false anticipation. Therefore, the overall impact of e-commerce in inventory management is that accurate information is attainable and efficient, and effective operations can be achieved by business owners because the amount of warehousing space required is reduced and constructively used with minimal wastage associated with unpredictable approximations and anticipations (Coyle et al, 2008).Now it is quite patent that the Internet is changing the image of the world economy. The Internet has the greatest impact on e-commerce between businesses (B2B). Companies form strategic alliances and build relationships with suppliers. The rate of education and growth of e-commerce, as well as promising prospects for increased supply chain efficiencies all these facts have a significant impact on the companies activities engaged in B2B commerce. Such businesses are forced to reduce operational and handling costs and at the same time to accelerate the supply chain activity. Those B2B companies that do business effectively have achieved a leading market positions in their industries. The supplying funds savings can be directed at the enhancement of IT infrastructure operations, and ultimately at the returns of customer service B2B. The differences between e-commerce B2B and B2C are more significant than between the retail and wholesale trade.From a business perspective, this means savings within the organization, a willingness to enter into profitable alliances with suppliers, a reduction of operative costs in the delivery of goods and services, the precise regulation of the complex coordination within the essence in respect of procurement, timely delivery and electronic payments. (Network solutions, 2012).ConclusionA company may command a hefty price on its product or service, but it is amazing how such companies may sometimes observe to be making minimal profit, making no profit or even running at a loss. This means that the cost of the product is different. Perhaps, to arrive at a reliable cost of stock means that business owners need to develop appropriate pricing system and to imp lement it so as it will result in extension of profits. Inventory management is a method through, which a business handles tangible resources and materials to ensure availability of resources for use.Efficient technology such as the application of e-commerce leads to effective inventory management. This is likely to lead to cost efficiency and effectiveness and then generate profitability. Main advantages of e-commerce for companies are global scale, reduction of inventoty costs, supply chain development, fast time-to-market etc. For customers they are large product variety, personalization, low prices, etc. The high emphasis should be placed on costs parameters when analyzing inventory management. The impact of shortage cost is wider than the lost profit, as it involves the loss of image, goodwill and potential losses from the reduction in the number of sales in the future. Identifying shortage costs is exceptionally difficult task, and it does not arise barely because the manage ment of an enterprise is not interested in toilsome these costs.Sometimes the shortage is offset by back-ordering. Shortage costs may lead to the loss of goodwill, this can affect the customers behavior in the future. Under present-day conditions, goodwill may change in the shortest possible time. A number of different factors can contribute to this, and therefore the organizations security policy should include measures to manage reputational risk. Is is apparent(a) that the goodwill in the current market environment is the most important competitive advantage for any company.