Inventory is considered a major resource investment to all organizations. The pr

Question

Inventory is considered a major resource investment to all organizations.   The predominant scope and purpose for investing in inventories is to successfully satisfy customer requirements, thereby supporting the continued growth of revenues.

Two (2) predominant practices for successfully managing inventories are: Proper management of inventory data and accurate processing of all transactions. (this is process related) Incorporating responsible planning and purchasing practices which will mitigate the risk of stock-outs while minimizing inventory carrying costs (this requires preparing proper work procedures and training practices)

The scope, purpose and management of logistics and process analysis significantly contributes to the management of inventories.

a.       Introduce the theoretical scope and purpose of logistics and process analysis

b.        Explain how the application of these (2) practices contributes to improving the management of inventories

c.       Provide an example for each

d.        Introduce operating performance metrics for each of these two (2) practices

e.      Introduce and explain the primary performance metrics for managing inventories

Explanation / Answer

Answer :

a. Introduce the theoretical scope and purpose of logistics and process analysis

The theoretical scope of logistics is to enable effective distribution right upto the last mile

Each logistical or transportation solution has a core competency. For Example Shipping helps move large volumes of goods across the world to the port and then to the distribution centres in a country where motor carriers pick up individual freight boxes and then deliver them across states, counties and regions where smaller delivery vans like UPS and Fedex help ship them to their destination. This part is known as last mile delivery.

Process analysis is a method of analysing a business or an operational process of a firm or an organisation by studying the various stages and the process involved in it's day to day businesses and operational decisions. Every firm has a different way of managing their inventory processes. A detail process analysis will reveal the efficiencies and in efficiencies in a firm's inventory management system.

For EG a process analysis of Walmart's supply chain will reveal that it has a very efficient inventory management system

Unlike walmart which only has volume and not variety, Amazon has one of the wides stockpiles of inventory in their e commerce stores. They also use concepts like drop shipping to enhance the variety of inventory in their stores.

b. Explain how the application of these (2) practices contributes to improving the management of inventories

How the application of Proper management of inventory data and accurate processing of all transactions. (this is process related) contributes to improving the management of inventories

This is because this is a problem in inventory management

Inventory includes a catalogued list of all the good and or services of the company or the raw materials of goods or services that the company currently has in  order to understand the quantity and products that the ware house or a business needs from its supplier.

Inventory Management will prevent the following issues

- Over Supply or Under supply of resources such as time and budget constrains, manpower or access to human resources , talent and technology. due to lack of operational planning.

- Over estimating or under estimating the timeline of a project and the firm's or the teams ability to complete it within the given time frame and resource constraints.

The possibility of a good weather causes Over Supply and Over Estimation which throws the project's budget of track.

How the application of Incorporating responsible planning and purchasing practices which will mitigate the risk of stock-outs while minimizing inventory carrying costs (this requires preparing proper work procedures and training practices) contributes to improving the management of inventories

One way companies undertake responsible planning and purchasing practices is by using MRP's or MRP (Material Requirements Planning ) systems

MRP (Material Requirements Planning ) and BOR (Bill of resources) are ERP or enterprise resource planning softwares. They're a system of organisation, controlling. modelling a project or a business's operational execution by viewing both its macro as well as micro elements. While MRP or Material Requirements Planning is a way to optimise inventory costs by using the data from forecasting manufacturing requirements from the operational planning and forecasting process. It makes way for proper allocation of resources, funds and the supply chain to support the manufacturing process of an operation. SAP, ORACLE are the two largest ERP and MRP software service providers in the world.

c. Provide an example for each

Example #1 : Proper management of inventory data and accurate processing of all transactions. (this is process related)

Walmart's Inventory Management

Walmart as an organisation grew form $44 million in sales to $44 billion under the careful guidance of Sam Walmart. The key factor in turning a strategic plan into reality is to focus on execution as much as you focus on planing. To focus on operational innovation at the grass roots level and thats exactly what Sam Walmart did. He had a brilliant strategy to make Walmart successful, it had to do with optimising logistics, supply chain and storage. This allowed goods to be shipped to a distribution centre where they are quickly inbound to the the store saving precious storage and inventory space and costs. This helped Walmart gain a competitive edge in the market in terms of price, availability of products and smooth operational efficiency.

Example #2 Incorporating responsible planning and purchasing practices which will mitigate the risk of stock-outs while minimizing inventory carrying costs (this requires preparing proper work procedures and training practices)

Incorporating responsible planning and purchasing practices which will mitigate the risk of stock-outs while minimizing inventory carrying costs (this requires preparing proper work procedures and training practices)

Amazon.com sells 356,227,986 products. Which makes it ones the largest e commerce retailers in the world. So from a volume stand point, Amazon scores high on volume of output.

Amazon Carefully analysis the demand for various products and plan their inventory accordingly

Amazon sees extensive demand for electronics. followed by clothing and apparel, Books, Home Utility. Home Electronics. FMCG's. home improvement, Tools etc. Unlike walmart which only has volume and not variety, Amazon has one of the wides stockpiles of inventory in their e commerce stores. They also use concepts like drop shipping to enhance the variety of inventory in their stores.

d. Introduce operating performance metrics for each of these two (2) practices

Performance Metrics for Proper management of inventory data and accurate processing of all transactions. (this is process related)

Performance Metrics for Incorporating responsible planning and purchasing practices which will mitigate the risk of stock-outs while minimizing inventory carrying costs (this requires preparing proper work procedures and training practices)

e. Introduce and explain the primary performance metrics for managing inventories

The primary performance metrics or the existing industry standards involves

Rate of error in warehouse processing / order fulfilment The ratio of correct to incorrect orders will give an accurate idea whether or not inventory data is being properly managed between the backend and front end systems of a firm % Over Supply or Under supply of resources This will give a clear picture about the the degree of effective inventory management in a firm

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