Inventory Management as the Backbone of Supply Chain Management - Coursework Example

Name: University: Instructor: Date: Operations Management 1.0 Abstract Inventory management can be defined as process of effectively managing the continuous flow of units into as well as out of an available inventory. As it will b evidenced in the report, the process of inventory management normally involves managing units transfer so as to avert the inventory from becoming exceedingly high, or falling to levels that may put the company’s operation at risk. The report seeks to verify that inventory management is the backbone of supply chain management, and analyze information technology impact on inventory management. The report will further provide a discussion about Inventory management in manufacturing organisations which will be evidenced by the case study (H&M’s Fashion). Results from the report point out that as economic pressure rises and competition intensifies, retailers continue experiencing more and more multifarious challenges concerning inventory management. Therefore, making products accessible to customers in retail stores does not only entail stocking displays and shelves, but also knowing what customers want. Also, it was established that an organization that successfully controls inventory costs as well as making certain high shelf availability, experience increased productivity. Table of Contents Operations Management 1 1.0 Abstract 1 Table of Contents 2 2.0 Report Body 3 2.1 Inventory Management Is the Backbone of Supply Chain Management 3 2.2 The Influence of Information Technology in Inventory Management 4 2.3 Inventory Management in Manufacturing Organizations 5 2.4 Inventory Management in Retail: A Case Study 7 2.5 Inventory Management for E-Commerce 9 3.0 Conclusions 10 4.0 Work Cited 12 2.0 Report Body 2.1 Inventory Management Is the Backbone of Supply Chain Management Basically, a company success is measured by the material quality they utilize for production, and so an effective inventory management will enable the company to get quality goods and handle the stock effectively and accountably. Through efficient inventory management, determining unworthy stock that can eventually negatively impact the production line as well as the final product becomes easier. Inventory management reduces spoiling of finished product as well as the product denial in the market, which may result in product failure (Kersten, Blecker and Ringle 380). For instance, the recent recalling of Toyota vehicles attributable to sub standard parts utilised in the production line, this led to increased cost and reduced sales. In this case, inventory management may have noticed substandard or poor parts prior to production and disallow supplier’s material used to produce these parts. So, accessibility of quality inventory results in continuous production. With regard to audits, inventory management brings about encouraging audit outcomes; thus, making certain profit maximization as well as Shareholder satisfaction. Certainly, the life and growth of a company is determined by inventory management bearing in mind that poor inventory management may result in decreased sales which consequently may lead to business failure. Regrettably not every organization appears to have suitable inventory management in position, and as a result they experience challenges such as counterfeited products, product misplacement, as well as stock replenishment on the shelves. Lack of effective inventory management leads to stock outs of about 30 percent, which as a result, impacts retail sales (Kersten, Blecker and Ringle 380). That is why score of organizations like Wal-Mart are using Radio-frequency identification (RFID) technology to improve their inventory management. Therefore, inventory management is the backbone of supply chain management because without it moving products or services from supplier to customer will be impossible and expensive. 2.2 The Influence of Information Technology in Inventory Management With the heightening concentration on improving supply management chain using the rapid development of Information Technology, Mongare and Nasidai (20) posit that organizations are aspiring to create as well as organize world-wide, efficient, and strategic inventory management system for improving supply management chain. So as to promote this global system for inventory management, which as well is consistent with sustainability goals, businesses must develop as well as put into practice effective systems both collectively and individually. As a result, this has led to contemporary inventory control brought about by better technology, which is amongst the most strategic plan adopted by businesses in partnering programs for promoting cooperation as well as sharing of information amongst trading partners. Given that IT single-handedly cannot guarantee successful implementation, the success of inventory management initiative relies on buyers as well as users using the novel system and process. Evidently IT has allowed customers to get huge amounts of information concerning a service or product, like its availability as well as physical attributes (Mongare and Nasidai 20). In current progressively more competitive marketplace, suppliers are constantly pressurized by consumers to concurrently increase the quality of their services and products as well as reduce lead times and costs. Effective inventory management as per Mongare and Nasidai (20) is no more a competitive advantage; rather it is an important capability for surviving in an international market. Therefore, a crucial feature of effective inventory management is efficient utilization of information. Understanding how to effectively use information makes it easier for a manager to choose what information to gather, purchase as well as stockpile, in addition to what type of IT to invest in. it is worth noting that information if not used effectively, then it has no value (Özer 321). For example, if an inventory manager can get information about order progress using tracking technology, but fails to use this information to improve decisions based on replenishment, then both the technology and information used has no value. Another vital feature of an effective inventory management is to measure the information value; therefore, inventory managers should invest in an information technology that gathers and stockpiles information pertinent for successful inventory management. Without a doubt, the cost of getting information is time and again not hard to examine, but measuring the benefits needs detailed modeling as well as analysis. For instance, quantifying the RFID implementation cost is somewhat simple; however, the benefit of this tracking technology for inventory management is not understandable. But still, using technologies such as RFID help make inventory management easier and reduces costs (Özer 322). 2.3 Inventory Management in Manufacturing Organizations Inventory management is essential in efficient and effective organization, and is as well very important in the control of goods and materials that must be stored for afterward use in production. The main objective of inventory management in manufacturing organizations is to balance the incompatible economics of the need not to hold surplus stock. By this means, inventory management tie up capital in an attempt to direct in opposition to the incurring of costs like spoilage, storage, obsolescence and pilferage, as well as the need to make goods or items accessible where and when needed in order to prevent the cost of failing to meeting this requirement (Adeyemi and Salami 135). Inventory management in manufacturing organisation is habitually a comprehensive process where several pieces and parts make up the final products such as Automobile companies. In manufacturing companies, inventory management is made possible by separating materials by product, putting a perpetual inventory method into practice, choose a method for cost accounting, setting up internal controls for physical products management, and creating a process for inventory reconciliation. The abovementioned undertakings help in managing both the company’s physical inventory as well as the accounting processes. Nearly all manufacturing organizations utilize a various types of materials to manufacture goods, which may range from big items such as fiberglass and steel sheets to indirect, miniature items such sealant, glue, or screws. Through inventory management, these items are separated by product to make certain that all lines of production have sufficient materials levels to manufacture goods. This as well stops other divisions from utilizing inaccurate materials when manufacturing goods. Besides that, internal controls are a crucial part of inventory management in manufacturing organizations. Such controls as per (Wisner and Stanley 176) avert the misuse or abuse of the inventory by workers as well as other personnel within the company. For instance, internal controls can reduce the number of persons ordering inventory as well as the number of times the company counts inventory. Nearly all internal controls are specific to the manufacturing organizations and rely on the number or types of inventory items. Importantly, inventory management in manufacturing organizations requires cost accounting methods so that managers can comprehend how to report inventory utilised in the manufacturing process. Therefore, inventory materials for all items manufactured are tracked trough job costing. This function perfectly for custom items such as movies, buildings or other products manufactured to certain specifications. Inventory for manufacturing steps required to manufacture goods is tracked by process costing, particularly for computer chips, food products, as well as carbonated beverages. 2.4 Inventory Management in Retail: A Case Study Fashion is not only about clothing, rather it is about how effective inventory management as evidenced by H&M clothing. Worldwide, H&M clothing is acknowledged for being an expansive and successful retail giant with regard to financial and market success. Clearly H&M’s strategy for supply chain is an ongoing hunt for assuring markets, reduction in lead times and costs, and cost-efficiency in goods production for their retail inventory. In Gartner ranking in terms of supply chain, H&M is third making it the second-largest clothing retailer in the world. This without doubt is not a simple achievement for an organization that has more than 900 stores in almost 20 countries, and which had a 14.6 billion Euros turnover in 2013 (Lu, 2014). With these astounding figures, it is evident that H&M’s inventory management has managed to successfully keep the retail giant afloat and make sure sufficient stock management for its 900 stores. Moreover, the organisation’s dependence on integrated as well as efficient systems for retail inventory management in its supply chain has and continues playing a crucial role in promoting success in the control management of its stock. Certainly, the rate of H&M’s retail inventory production is increased by H&M over reliance on outsourcing from production to design. Even though H&M’s main operation depends on its pattern makers, creative directors, as well as designers to remain above the most recent trends, it as well makes use of the services of forecast companies in fashion the fashion industry like Worth Global Styles Network (WGSN) to remain on track (Lu, 2014). As a dynamic retailer, H&M uses both experimental augmented-reality technologies as well as traditional analysis to determine consumer interests. The organization depends on information technology integration between the production offices and central national office, and through inventory management, H&M has successfully managed to communicate with its partners as well as follow up on the order progress. With effective inventory management, H&M has succeeded in reducing the average lead time by 15 to 20 percent, which has mainly been attributed by their uninterrupted progresses in the buying process. Short lead times and flexibility brought about by effective inventory management, have reduced the possibility of purchasing wrong products as well as enabling quick restocking at H&M stores with the finest clothing at friendly prices. These days, all retail businesses require a highly developed inventory management system, which is capable of handling their multifaceted needs of inventory recording. For this reason, H&M has continually updated its stock inventory database so as to run a successful business. Keeping an inventory database that is updated has turn out to be a must for H&M, considering that the inventory manager is always aware of the present stock reports so as to avoid stock out or overstock situations. H&M inventory management system has successfully managed to care for all the needs of H&M retail stores. It as well helps in making various everyday tasks simpler, engaging a range of other resources. The key features of H&M inventory management system include multiuser support, real rime tracking, mobile accessibility, barcode scanning, multiple location accessibility, cloud support, manage sales and purchase orders, multiplatform accessibility, and generates profits and sales. 2.5 Inventory Management for E-Commerce Above all appropriate inventory management is vital to the success of all organizations, but also for online businesses they make enable customers to not just locate certain inventory easier but as well make sure that the associated content and imagery load fast. As businesses as well as consumers espouse the Internet, e-commerce applications strategies as well as processes must be re-examined constantly. Scores of Internet retailers have ignored the significance of managing inventory processes as well as supply chain management (Snyder and Hamdan 2). This as a result, has made retailers who understand the importance of inventory management to have an advantage over those ignoring it. Besides that, large retailers are overpowering small retailers by using their financial resources to put click and mortar services into operation so that they reduce their reliance on a third party delivering their products. Retailers using click and mortar also appear to derive benefit from synergies created by being capable of selling from many channels. In addition, organization using click and mortar can join together processes like logistics as well as advertising through their physical and online channels; thus, generating more synergies. According to Snyder and Hamdan (2), espousing click and mortar strategies offers customers’ flexibility, considering that offering the best customer with satisfaction is the objective of any organization. Essentially, commerce has been accelerated by globalization, and the Internet has been the source of power for a solid supply chain. Supply chains include organized activities where retailers, distributors, manufacturers, as well as suppliers collaborate. Importantly supply chain is created for delivering service and products to customers efficiently. These days, consumers want a supply chain that is free from error, which heightens the pressure of demand and supply management. So, integrating inferior inventory processes, then the retailers’ total costs is lowered. Retailers using e-commerce are likely to carry lower inventories as compared to brick-and-mortar retailers for the reason that online supply chains include stakeholders more successfully as compared to non-internet practices. A number of products may be sold online without difficulty like music, books, and even electronics. Products like clothing, on the other hand, are more hard sell through e-commerce for the reason that consumers desire to physically feel such types of products prior to buying them. Therefore, businesses that can achieve real-time and flawless supply chain integration will easily get a competitive advantage. To get real-time effectiveness, applications for e-commerce must have effective inventory management system and be multi-layered. 3.0 Conclusions In conclusion it has been argued that inventory management is the backbone of supply chain management because it eliminates challenges such as replenishment of stock, counterfeiting, as well as product misplacement with no human intervention. The integration of inventory management as well as information technology as discussed din the report have turn out to be more and more important but difficult to achieve due to the recent rise in supply chain intricacy. Such intricacies are the outcome of dramatic changes in distribution as well as production, which includes outsourcing and globalization. Therefore, independent companies manage inventory distributed across various global locations of supply chains. Importantly, all organizations in the supply chain individually set operational and strategic goals with the intent of minimizing production as well as inventory associated costs. Through IT, companies maximize profits by utilising local information like local forecasts, profit margins in addition to cost structures. When retailers such as H&M clothing make use of inventory management they get benefits like improvement in sales, reduction in costs and lead time, improved profits, and improved replenishment efficiencies. As the Internet continues being part and parcel of consumers and businesses, e-commerce applications processes as well strategies must be continually reassessed by inventory system. Businesses that disregard the value of inventory management end up failing. 4.0 Work Cited Adeyemi, S. L. and A. O. Salami. "Inventory Management: A Tool of Optimizing Resources in a Manufacturing Industry A Case Study of Coca-Cola Bottling Company, Ilorin Plant." Journal of Social Sciences 23.1 (2010): 135-142. Kersten, Wolfgang, Thorsten Blecker and Christian M. Ringle. Managing the Future Supply Chain: Current Concepts and Solutions for Reliability and Robustness. Berlin, Munich: BoD – Books on Demand, 2012. Lu, Clara. Behind H&M’s fashion forward retail inventory control. 22 August 2014. 7 December 2014. . Mongare, Momanyi Edwin and Sanewu Esther Nasidai. "The Impact of Information Communication Technology on Inventory Control Systems In Transport Organization: A Case Study of Kenya Ferry Services." European Journal of Logistics Purchasing and Supply Chain Managemen 2.1 (2014): 17-41. Özer, Özalp. "Inventory Management: Information, Coordination, and Rationality." International Series in Operations Research & Management Science 151 (2011): 321-365 . Snyder, Rell and Basel Hamdan. "E-Commerce and Inventory Management." Proceedings of ASBBS 16.1 (2009): 1-5. Wisner, Joel and Linda Stanley. Process Management: Creating Value Along the Supply Chain. New York: Cengage Learning, 2007. Read More