Inventory
is a significant and visible asset in most companies often the largest.
Generally it costs 20% to 40% of the materials cost per year to store.
Thus
a better inventory control system is the need of the organizations. A system
which could control the flow by bringing of materials in and sending out on
demand ideally. It frees up resources to employ elsewhere
in the company. A retail store can remodel the warehouse space into more retail
sales floor space without expanding the physical store. A manufacturer gets
more space to produce goods. Both companies free the workforce to focus on
primary tasks, from making goods to interacting with customers rather than
storage.
For lowering the
inventory level we have various existing inventory models like – JIT, ABC
Inventory Control, Economic Order Quantity, Pooling Inventory etc. But for
using these models management must rethink the
entire work flow of the company, from initial intake of raw materials to final
output of finished product. Supply-chain relationships require retooling that
involves multiple suppliers, closer locations, or companies that can supply
materials with little advance notice. Companies ordering smaller amounts of
goods may encounter difficulty meeting minimum orders, requiring a different
contract or a way to break up a large order over time or among several smaller
manufacturers. Any attempt to reduce inventory must be in harmony with
the goal of the organization which is to maximize long-term profits.
Conventional
wisdom holds that inventory provides a buffer to ensure smooth operation
against supply chain disruptions, from delivery delays through individual
workstation breakdowns to unanticipated consumer demand. However, a carefully
planned and systematically executed inventory control system can eliminate
waste and encourage higher-quality output. But no inventory model is the best as
there is nothing like best in the business. We should always search for the
right/better approach. Like JIT could work better for Auto Industry, ABC could
be implemented when resources are limited; EOQ could work where demand is
constant. So it is very difficult to implement
any inventory control model as a stand-alone process.
“Storage and wastage go hand on hand”
must be the part of continuous improvement programs with the goal to minimize
inventory or zero inventories where we could use one or two inventory model or all
of them at a time depending on the variable factors as the culture of
continuous improvement.
