Abstract
The management of inventories is important for a business to grow and develop. Inventories are important part for a firm to satisfy a client’s need. Inventories are either the number of supplies or products that a firm keeps in its warehouses. Inventories need to be properly managed to maintain recommended levels. This paper wrote a literature review on five (5) research articles about inventory management. Each article talked about something related to inventory management. Biggart and Gargeya's article explained that JIT was not helpful for a firm and it did not bring the promised benefits. Ballard’s article did not mention the problems with the inventory control system and the warehouse management system. The article of Zain gave a complete description of Malaysia Airlines and its Inventory system. The article gave some idea on the problems of the inventory system. On the other hand the article did not give a detailed discussion of the implementation of the proposed strategies. The article did not show how the proposed strategies would be implemented and the time frame for its implementation. The article of Goonatilake clearly described the plight of inventory systems in developing countries. The article of Goonatilake did not give recommendations on other systems that can be used to counter the inventory system problems faced by developing countries. He did not give ideas on the other inventory management strategies that developing countries can focus on. The article of Waters stressed that other countries have higher stocks than the UK. The article of Waters did not give recommendations on means to dispel the notion that the UK manufacturing industry is overstocked. The article did not try to explain the importance of dispelling the notion that the UK manufacturing industry is overstocked
Introduction
Because most companies are faced with changes in demand, they typically have opportunities to decrease costs by improving coordination between participants in the distribution channel. Because phase plane diagrams so effectively reveal any turbulence, disruption, or systematic patterns in the distribution process, they provide a valuable way to describe and communicate channel behavior. Retailers can use phase plane diagrams to image the disruptive patterns caused by inconsistent shipments by suppliers. Suppliers can illustrate the pattern of supply and work with retailers to smooth shipments into regularly oscillating or consistent behavior. Only by knowing the precise behavior of the distribution process can the channel member hope to improve it beyond any conventional, statistically controlled process (Priesmeyer 1992). Any requirements or activities that restrict the company's ability to immediately scale up or down in production capacity constitute blocks for the company. Blocks are represented by the need to place early orders, the need to warehouse inventory, the delay in distribution of products, the delay in accumulation of point of-sale data, and the need to maintain raw materials at the manufacturing level. The effect of blocking is less severe when demand is predictable, since management can allow for the anticipated delays and still meet the predictable demand (Priesmeyer 1992).
When demand cannot be predicted with precision, blocks in the production process inevitably result in decreased profitability. If demand is underestimated, the company suffers from stock outages, increased shipping costs, and overtime. If demand is overestimated, price decreases, inventory carrying costs, and inflated payrolls drive down profitability. Inventory turnover rates commonly are computed to assist in the control of inventory levels by relating them to sales. The ratio computed essentially measures what has been sold relative to what is on hand. Specifically, the computation divides cost of goods sold by average inventory at cost. It usually is reported on an annual basis (Bing 1996). Inventory turnover rates can be computed for any product or product line and can be computed over intervals shorter than one year. The measure is essential to determining how much replacement inventory to buy or manufacture. Independent marketers may either by contract or practice has the right to return unsold merchandise and so create a material unrecorded liability. Distributorship agreements often contain provisions that should the grantor terminate the distributorship agreement, they will buy back the distributor's inventory. In addition, either written or unwritten agreements may exist providing that slow-moving inventory may be returned. Most troublesome are situations in which manufacturers or importers guarantee to accept return of any unsold goods regardless of the reasons. The circumstances under which merchandise can be returned, the record of returns and the potential outstanding exposure require study. Close attention should be given to how returned merchandise is recorded on the financial statements. If products are moving slowly for the marketers, demands to return merchandise may occur, regardless of any contractual obligations (Bing 1996). Inventories are important part for a firm to satisfy a client’s need. Inventories are either the number of supplies or products that a firm keeps in its warehouses. Inventories need to be properly managed to maintain recommended levels. This paper intends to write up a literature review from the five (5) research articles about inventory management and its strategies.
Literature review
Impact of JIT on inventory to sales ratios by Biggart and Gargeya
Biggart and Gargeya in their article Impact of JIT on inventory to sales ratios mentioned that Just-In-Time (JIT) production has received a great deal of attention, worldwide, since its introduction in Japan a few decades ago. It has been well documented that some of the main benefits of JIT implementation are reduction of inventories, lead-time reduction, and cost savings. Most of the previous research on the impact of JIT on firm performance has either been anecdotal or cross-sectional in nature. The results of Biggart and Gargeya’s paper show that the total inventory to sales ratio and raw material inventory to sales ratio decreased post-implementation; however, there has not been any statistically significant change in work-in-process inventory to sales ratio and finished goods inventory to sales ratio post-implementation. Biggart and Gargeya’s findings indicate that the total inventory to sales ratio and the raw material inventory to sales ratio reduced substantially post-JIT adoption. There has, however, been no statistically significant change in the WIP inventory to sales ratio and finished goods inventory to sales ratio post-JIT implementation. The findings from the current study indicate that firms reduced their total inventory primarily through reductions in raw material inventory and not through significant reductions in WIP and finished goods inventories. This means that the firms were probably wielding the stick on their suppliers to reduce their own raw material inventories. The article explained that JIT was not helpful for a firm and it did not bring the promised benefits. The article was able to prove that JIT should not be used for inventory management. On the other hand the article did not give recommendations on what companies who uses JIT can do to make sure that they will achieve their goals even after JIT is not used.
Methods of inventory monitoring and measurement by Ballard
Ballard mentioned that much has been written about the management and control of inventory but very little has been written about how inventory can best be monitored and measured in the warehouse. For Ballard this is surprising considering that stock is monitored and measured every day by thousands upon thousands of organizations. He mentioned that the monitoring and measurement of inventory is not simply a question of stock checking. It is about knowing, at all times, everything that needs to be known about the stock to ensure the effective management of the warehouse and the reliable feedback of data for management of the business, including inventory control, purchasing, sales order processing and invoicing, monitoring means knowing about the progress of goods and materials as they are processed through the warehouse. In the article Ballard mentioned that a good warehouse management system does not necessarily mean fully computerized in real time. It is important that the solution is appropriate to the problem. However, the best way to provide easy monitoring is certainly with some form of computerization. Ballard stated that with better monitoring of the process and the faster the information processing, then the better will be the utilization of space and resources in the warehouse. Ballard’s article gave a clear view of how inventory and warehouse management systems would assist the company to manage its supplies and resources. Ballard’s article explained some differences between the inventory control system and the warehouse management system; he then mentioned the benefits of each system. Ballard’s article did not mention the problems with the inventory control system and the warehouse management system. He did not give alternative systems that a business can use to monitor its supplies.
Inventory Management Strategy: Malaysia Airlines 1989-1993 by Zain
Zain mentioned that Being a multi-role airline providing intercontinental, regional, domestic and rural services, Malaysia Airlines operates seven different aircraft types and six engine types; a very high equipment variety for one airline. Zain stated that for the immediate future, Malaysia Airlines requires SPEC2000. This program enables order entry from the MASTERS terminals without having to transmit the telex manually. MASTERS needs to be modified to cater for this need. Apart from speed and accuracy, there is a cost saving of Rgt 20,000 in clerical work and Rgt 150,000 inventory cost for a year. The article of Zain gave a complete description of Malaysia Airlines and its Inventory system. It explained the different data about Malaysia Airlines and technologies it used to manage its inventory. The article gave some idea on the problems of the inventory system. In the final part the article by Zain gave recommended strategies. On the other hand the article did not give a detailed discussion of the implementation of the proposed strategies. The article did not show how the proposed strategies would be implemented and the time frame for its implementation.
Inventory Control Problems in developing Countries by Goonatilake
According to Goonatilake in many developing countries there are two common factors that have a profound impact on any inventory control policy adopted one is on the reliance on imported raw materials and parts wherein many developing countries rely heavily on imported basic raw materials and parts for running their factories. The other is bureaucracy and related problems wherein manufacturers in developing countries often have to face many bureaucratic obstacles in placing orders for raw materials and parts from overseas. According to Goonatilake their efforts are further hampered by poor communication networks within the country as well as with the outside world. The article of Goonatilake clearly described the plight of inventory systems in developing countries. Goonatilake suggested inventory control techniques that can be used to counter the inventory system problems faced by the developing countries. The article of Goonatilake did not give recommendations on other systems that can be used to counter the inventory system problems faced by developing countries. He did not give ideas on the other inventory management strategies that developing countries can focus on.
Is UK Manufacturing Industry really overstocked by C.D. Waters
For waters although UK stocks seem slightly high they are not unusual. Waters believes that valid international comparisons are extremely difficult because of the lack of consistent information, but available evidence suggests that UK stocks are generally comparable with those of other countries. The article of Waters tried to disprove the notion the UK manufacturing industry is overstocked. The article of Waters showed diagrams and graphs that show the minimal difference between the stocks of UK and other countries. The article of Waters stressed that other countries have higher stocks than the UK. The article of Waters did not give recommendations on means to dispel the notion that the UK manufacturing industry is overstocked. The article did not try to explain the importance of dispelling the notion that the UK manufacturing industry is overstocked.
Solution
Inventory management strategies should make sure that even if JITs are not effective, other strategies like the ERP system would be available for companies to use. It should use ERP systems or customer managed inventory systems that can be used to improve data collection. Customer managed inventory systems would make sure that the firm would have a better relationship with clients. Inventory management strategies can be combined with vendor managed inventories so that the control over supplies would be split between the company and the suppliers. The addition of vendor managed inventory to the current inventory management strategy would make sure that supplies would be properly facilitated by more than one party. ERP systems would make sure that the inventory management strategy would be implemented using a well organized plan Inventory management strategies should be properly organized so that proposed changes in it can easily be implemented and its effects would be clearly seen. It should be properly explained to those involved so that confusions would be minimized. Inventory management strategies should make sure that the right data would be disseminated to reduce doubts about supplies. It should make sure that all data would be accurate and free for all to look at. Demand flow technologies can be used to make sure that everything would be properly calculated, from the demand of supply to delivery of supply to the company. Inventory management strategies should be prepared for problems in any market or country it is being implemented. It should know how to adapt to any changes in the environment. Total quality management should be used to make sure that even if problems arrive, the firm would be prepared and it would not rush into making decisions that would give it additional problems.
Conclusion
The inventory management and some of its related strategies were able to assist an industry or a country to make sure that its goals are met. An industry and a country needs to make sure that the inventory management strategies would be improved further through the use of advanced inventory systems so that they can survive any change in the environment. An industry and a country need to make sure that people involved in the inventory management would be properly trained to perform their duties.
References
Ballard, RL 1996, 'Methods of inventory monitoring and
measurement', Logistics Information Management, vol. 9, no. 3,
p. 13.
Biggart, TB & Gargeya, VB 2002,'Impact of JIT on inventory to
sales ratios', Industrial Management & Data Systems, vol. 102,
no. 4, 198.
Bing, G 1996, Due diligence techniques and analysis: Critical
questions for business decisions, Quorum Books, Westport, CT.
Goonatilake, PC 2007, 'Inventory control problems in
developing countries', IJOPM, vol. 4, no. 4, p.59.
Priesmeyer, HR 1992, Organizations and chaos: Defining the
methods of nonlinear management, Quorum Books, Westport, CT.
Waters, CD 2007, 'Is UK manufacturing industry really
overstocked?', IJPD & LM, vol. 14, no. 5, p. 9.
Zain, S 2007, 'Inventory Management Strategy: Malaysia Airlines
1989-1993', IJPD & LM, vol. 20, no. 9, p. 32.
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