Inventory Management
Inventory management is primarily about specifying the size and placement of stocked goods. Balancing the various tasks of inventory management means paying attention to three key aspects of any inventory. The first aspect has to do with time. This means understanding how long it takes for a supplier to process an order and execute a delivery. A solid understanding of how long it will take for those materials to transfer out of the inventory should be established. Knowing these two important lead times makes it possible to know when to place an order and how many units must be ordered to keep production running smoothly. Calculating what is known as buffer stock is also a key to effective inventory management. Tracking materials as they are used to create finished goods also helps to identify the need to adjust ordering amounts before the raw materials inventory gets dangerously low. Finally, inventory management has to do with keeping accurate records of finished goods that are ready for shipment. All operations have to hold levels of inventories. The typical reasons for this are: to allow for demands that are larger than expected, to allow for deliveries that are delayed or too small, to avoid delays in passing products to customers, to take advantage of price discounts, to buy items when the price is low and expected to rise, to make full loads and reduce transport costs, to provide cover for emergencies. There are problems with holding inventories: storage costs, interest is tie up1 – therefore, a loss on capital, obsolete2 stock, less money is available for the business, prices fall on held items.
Management wisdom between 1950s – 1980s was to own the whole supply-chain.
| T H E S U P P L Y C H A I N | MATERIAL PROCESS |
| Purchasing Receiving Storage Retrieval Conversion process Packaging Transport Warehouse/Retailing Customer | The key strategic questions: The questions for the firm are: What business are we in? Is it manufacturing or assembly? Is it both? Is it neither? To what extent does the firm want to own assets throughout the supply chain? With which suppliers (and numbers of suppliers) does the firm want to have strategic long-term relationships? 7. What is the extent of the suppliers' involvement: is it just delivery of materials, or does it involve other business areas, such as joint design of new products? |
Reasons for vertical integration werethe need for control (cost, assurance of delivery, quality) within the chain and possibility of diversification of business activities. There was a commonly believe that “the bigger we are, the better we are” – bigger on the balance sheet “Asset”1. Nowadays this strategy is changing. Western firms began to understand how Japanese companies manage buyers-suppliers relationship. “Nowhere has the contrast between Western and Japanese manufacturing been more evident than in materials – or inventory – management.” Inventory management has become the indication of world class practices. It is a key parameter to assess the capabilities of management.
The role of inventory management is supplying goods to its customers, when suitable products are available at an acceptable price within reasonable timescale.
Objectives for inventory control arecustomer service, inventory cost and operating cost. The most profitable policy is not to optimize one of these at the expense of the others.
Managing inventory:the purpose of controlling the inventory is to drive the stocks toward their proper level which is determined by the characteristics of supply and demand patterns. The major factors are supply lead time, average demand rate, variability of demand, supply frequency, customer delivery time allowed.
There are also practical considerations such as:reliability of the supplier,criticality of the item, availability of item from other sources.
Just in Time Management: The Just-In-Time (JIT) inventory system is having the right goods/products, at the right time, at the right place, and in the exact amount without the safety net of excessive inventory. It overcomes the need for storing large volumes of stock ‘Just-In-Case’ they are needed. It requires setting up a contract with a logistics provider (JIT company) to store and deliver equipment as and when needed. JIT is the logical aim of tight inventory control, effective process planning and plant design, workforce motivation, cost reduction; logistics and even material require planning. JIT works as pull system whereas conventional stock control and material require planning (MRP) are essentially push system. Move to a true JIT requires changing of attitude: “We are doing alright, don’t risk it” has to be replaced “What we need to do and how do we make it happen?” The advantages of JIT are inventory investment, “supply to order” instead of “provision for stock”, less slow moving stock, better flexibility, simplified administration, waste elimination. Three main factors that determine safety stock are variability of demand, reliability of supply, and dependability of transport. One of the means through which JIT can be achieved is Kanban system (Kanban means “card” in Japanese). It is a concept related to lean and just-in-time (JIT) production. It is an information tool developed initially by the engineer Taiichi Ohno at Toyota. The Kanban is a card (or label) fastened to a specific item being manufactured (finished or semi finished product) that tells a workstation the quantity to be delivered to the workstation located just downstream. It is a scheduling system that tells you what to produce, when to produce it, and how much to produce.
6. Give English equivalents for the words and phrases given below:
владеть активами; выписывание счетов; гарантийная поставка, долгосрочные отношения; заготовка запаса; запись заказов; материальные средства; надежность поставщика; полная загрузка, поставка под заказ; производство и упаковка; резервный запас; розничный торговец; сторона-подрядчик; совместное субподрядная организация; стоимость запасов; уровень материальных запасов; устранение отходов; хранимые товары; эксплуатационные расходы.
7. Complete the sentences using words and expressions given below:
price; stocks; availability; quantity; timescale; manufactured; control; inventory; loads; material; demand; cost; supplying; delays; levels; reliability
The reasons for holding …………….1of inventories are avoiding ……………2 in passing products to customers, taking advantage of ………..3 discounts, making full ………..4 and reduce transport costs.
The role of inventory management is ……………5 goods to its customers, when suitable products are available at an acceptable price within reasonable……………….6.
The purpose of controlling the ……………7 is to drive the …………8 toward their proper level which is determined by the characteristics of supply and …………….9 patterns.
“Just-In-Time” is the aim of tight inventory……………10, effective process planning and plant design, workforce motivation, ……………11 reduction, logistics and ………….12 require planning.
The practical considerations of managing inventory are ……………..13 of the supplier,criticality of the item, ……………14 of item from other sources.
Kanban, a scheduling system, a label fastened to a specific item being …………………15 that tells a workstation the …………….16 to be delivered to the workstation.
8. Answer the questions:
1. What are the reasons for holding the level of inventories?
2. What was inventory management focused on in the 1950-80s?
3. Why were the reasons for vertical integration?
4. How has the way of thinking on inventory management nowadays changed comparing to that one in the past?
5. What is the role of inventory management?
6. What is the most profitable policy in the inventory control?
7. What is the purpose for inventory control?
8. Why is it necessary to hold the levels of inventories? Name the reasons for it.
9. What was inventory management focused on in the 1950s-1980s years?
10. Why were the reasons for vertical integration?
11. What is the role of inventory management?
12. What is the most profitable policy in the inventory control?
13. What is the purpose of controlling the inventory?
14. Name the practical considerations of controlling the inventory.
15. How can you describe Just-In-Time principle?
16. JIT is the logical aim of many things. Enumerate them.
17. What does push-pull system mean?
18. What kind of attitude from the part of the firm management is necessary in order to implement JIT system?
19. What does “Kanban” mean?
9. Translate the sentences using the text “Inventory Management”:
1. Канбан – система организации производства и снабжения, позволяющая осуществлять принцип «точно в срок».
2. Оперативное управление материальными запасами исходит из особенностей их потребления.
3. Цель контроля материальными запасами – привести их к должному уровню, который определяется параметрами поставки и моделями спроса.
4. «Точно к сроку» - это тянущая система, тогда как традиционный контроль материальными запасами и планирование спроса на материалы – толкающая система.
5. Основные причины поддержания уровня материальных запасов – это преимущество покупки товаров по сниженным ценам, выполнение полных загрузок, сокращение транспортных расходов, страхование несчастных случаев.
10. Choose the most appropriate verb (See Language Notes):
In order to be successful we have to/must hold levels of inventories.
Logistics managers must/should avoid delays in passing products to customers.
The management group is told that they must/have to develop strategic long-term relationships with this freight forwarder.
All production makers mustn’t/should think “We are doing alright, don’t risk it”.
All employees should/must drive the stocks toward their proper level which is determined by the characteristics of supply and demand patterns.
If you want a tight inventory control, effective process planning and plant design, workforce motivation and cost reduction you must/should implement Just-In-Time Management.
The manager told his assistant “You should/must learn how to use Kanban system”.
We agree with our partners that we have to/should control the supply chain and diversify business activities.
When striving for safety stock, you should/must keep in mind variability of demand, reliability of supply and dependability of transport.
We can’t rely on our old supplier. We mustn’t/have to change the partner.
Retell the text “Inventory management” according to the plan:
A. Main aspects in inventory management.
B. The importance of inventory management.
C. Objectives of inventory control.
D. Just in Time Stock replenishment.
E. Kanban system.