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Stockpile of products a firm is offering for sale and the components that make up the product.

In other words inventory is composed of assets that will be sold in future in the normal course of business
operations.

Key points-

u| ?onstitute significant part of current assets

u| Œn an average approximately 60% of current assets in Public Limited ?ompanies in India

u| © considerable amount of fund is required

u| -ffective and efficient management is imperative to avoid unnecessary investment

u| Improper inventory management affects long term profitability and may fail ultimately

u| D0 to 20% of inventory can be reduced without any adverse effect on production and sales by
using simple inventory planning and control techniques

 
 ʹ Basic inputs that are converted into finished product through the manufacturing
process

  ʹ Semi-manufactured products need some more works before they become
finished goods for sale

   ʹ ?ompletely manufactured products ready for sale

 ʹ Œffice and plant cleaning materials not directly enter production but are necessary for
production process and do not involve significant investment.
 
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9| c - The time lags present in the supply chain, from supplier to user at every stage, requires
that you maintain certain amount of inventory to use in this "lead time"

9| m 

 - Inventories are maintained as buffers to meet uncertainties in demand, supply and
movements of goods.

9| -    - Ideal condition of "one unit at a time at a place where user needs it, when
he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement
and storing brings in economies of scale, thus inventory.

 
   ~

  

9| Track inventory
9| ow much to order
9| ëhen to order
©  

 

6|?lassification problem

6|Œrder quantity problem

6|Œrder point problem

6|Safety stocks

?
 
9| ©B? analysis

9| M- (vital, essential , desirable) analysis

9| M S (fast, normal, slow, dead)

9| S -(scarce, difficult, ease)

Π

 

-Π

a. Trial and -rror (analytical) ©pproach

b. Mathematical (short cut) ©pproach

-Œ
2©B/?

© ©nnual usage of inventory (units)

B buying cost per order

?carrying cost per unit

Π

Reorder point is the point at which to order inventory expressed equationally as:

Lead time in days × daily usage

Lead time is time taken in receiving delivery after placing order with suppliers


 

Safety stock implies extra inventories that can be drawn down when actual lead time and/or usage
rate are greater than expected
~

  

   
Inventory management systems help a firm in managing the flow of raw materials, semi-finished and
finished products, and equip the staff to co-ordinate various activities for effective inventory
management.

Inventory management systems do not make decisions directly, but help the employees to make
decisions. © good inventory management system would also provide help in forecasting the demand and
supply apart from ensuring that the confusing paper work is done away with, and making sure that
information about warehouses, and links to suppliers of raw materials as well as customers, retailers and
wholesalers is readily available for use. The basic constituents of an inventory management system are
sales forecast, production planning, advanced planning for procuring raw materials and semi-finished
products required for manufacturing and keeping the inventory at a desirable level.

© number of software tools and offline resources are available to help a firm devise a productive
inventory management system. In big companies, experts are entrusted with the job of handling
inventory management systems. Such companies mostly use customized software.

There are specialized firms which help design operating systems. ?ompanies which have huge inventories
prefer to go for inventory management systems. This ensures that there is no pilferage or wastage,
warehouses are managed properly and there is no loss of sale due to shortage of finished products or
behind-schedule supplies to customers. Information systems need to be upgraded at regular intervals.
Several new features can be added to such systems without costing too much. There are several training
courses which can help one to learn more about inventory management systems. Many of them are
short-term courses which help one learn how to manage these systems optimally.

~

 


   
   
  

  



   

  






  




 


 



 
  
 
  


 
 





 

-fficiency in effective inventory management will always give a competitive edge to the business,
regardless of its nature. ëith effective control and management over inventory stock, as well as accurate
visibility and fast efficient fulfillments, comparative pricing can be given on a customer-to-customer basis.

In addition to cutting down on operating costs, it will also bring satisfied customers back for more
businesses in the near future. owever, modern day management of the inventory is usually not as simple
as the contemporary practices of just keeping abreast with inventory standards and expenditures.
Most businesses, especially those in the process and manufacturing industries, will require varied sets of
both simplified as well as complex integrated inventory management controls. Such regulations are
streamlined for effectiveness in compliance and distribution as well as making provision for further
improvement on software and other protocols.

Primarily, the first and most important step to commence in inventory management is to acquire accurate
data in terms of facts and figures. ext, a set of rules and regulations is set up to protect and guard the
information efficiently. Such information may become a crux factor in the improvement of inbound
operations, strategies and productivity.

In addition to the physical monitoring of materials being moved into and out of the stockrooms and
drawing up reconciliations of the inventory balances, other tasks involved in inventory management may
include tracking and reporting of replenishment techniques, analysis on the actual and projected
inventory status as well as setting periodic targets and re-engineering the execution framework.

©lthough having proper management of the inventory may create a great difference in attaining and
retaining a competitive edge in the sales markets for certain products of any businesses, it remains an
integral and essential effort of a company to reduce its inventory management costs.

©s a result, several computer software companies have since developed a standardized set of
comprehensive inventory management systems to help businesses control and manage their inventory
stock.

©side from certain specialty features, the requisite module should be able to integrate into the pre-
existing software system of the business. In addition to providing a quick and easy access to detailed
inventory and ordering information, the new inventory management software should also give accurate
and timely data.

©lthough the inventory management system is a beneficial tool, there are some basic and extremely
significant points to ensure an effective and proper flow. These will include good practices like making
accurate entries on every stock receipts into the computer, setting up a replenishment strategy on all
items in the stock houses and drawing up specific guidelines on the control of excess inventory as well as
on-going dead stock. Such effective inventory management habits will give any kind of businesses a
superior competitive advantage over their competitors, especially with an easy-to-use stock analysis tool
that delivers quick and accurate information.

©ny kind of manufacturing operation is almost impossible without the support of software. ?ustom
designed software packages meant for all sorts of applications in the production industry are very
common. Inventory control is a very important part of the manufacturing process, and it is extremely
essential to check what is moving where, current stock levels, supplier details and seller details to ensure
proper compliance with the entire process. This becomes enormously arduous without the proper tools
and the right software packages.
©n ideal inventory control software is easy to use, flexible, powerful, and able undertake all kinds of
inventory control activities such as: serial number tracking, checking the minimum stock levels, reordering
quantities, assemble items, disassemble items, MIMŒ/LIMŒ cost tracking, item sales history, billing of
materials, and real-time adjusting stock levels. It also accommodates customer information,
vendor/supplier information, sales, and purchases and generates reports for all categories. It can identify
in-stock items, out-of-stock items, and sales quantities by item, customer balances, invoice balances,
purchase order details, detailed sales lists, sales tax reports and outstanding order details.

Today, there are many inventory control software packages available. -ach of them performs most of the
basic functions apart from providing additional services like printing barcode labels, barcode scanning,
printing vendor mailing labels, printing item pricing labels, printing customer mailing and shipping labels,
locating purchase orders, generating purchase orders automatically, searching for invoices by field name,
ability to track serial numbers for items, weight tracking, image association, calculating discounts, tracking
non-depleting items, filtering only requested information, and printing invoices and purchase orders. The
packages also have better database support to keep vendor and customer information and inventory
statistics at the fingertips.

There are also customizable inventory control software packages that can be personalized. They also have
user-friendly, multi-user interfaces for easier interaction. Many allow complete remote access when
connected to the Internet. The minimum system requirement for installing an inventory control system is
a Microsoft ëindows operating system (95 or above), 32 MB R©M and at least 24 MB of hard disk space.
Some of the popular brands of inventory control software packages are: iRenaissance S?M, Track-It!,
TR©, ?oreIMS, etSuite, InveTrak, and Integrated Inventory Management Software. ëhen choosing
inventory control software, consider a few important aspects such as the cost, the functions, integration
with the current software systems and long-run maintenance costs. Software packages are available from
just $D99 onwards. Most companies also allow free download of the trail version for a limited period.

~

  

  
 
  ©©

The recent impressive financial performance of the Spanish group Inditex (its 2005 income-to sales ratio
of D2% was among the highest in the retail industry) shows the promise of the
 

 
model adopted
by its flagship brand Zara, but also other retailers that include Sweden-based M, Japan-based ëorld
?o., and Spain-based Mango. The key defining feature of this new retail model lies in novel product
development processes and supply chain architectures relying more heavily on local cutting, dyeing
and/or sewing, in contrast with the traditional outsourcing of these activities from developing countries.
ëhile such local production obviously increases labor costs, it also provides greater supply flexibility and
market responsiveness. Indeed, fast-fashion retailers offer in each season a larger number of references
produced in smaller series, continuously changing the assortment of products displayed in their stores
(Ghemawat and ueno 2003 report that Zara offers on average DD000 references in a given season,
compared to only 2,000 -
4,000 items for key competitors) in order to increase their appeal to customers
(a top Zara executive quoted in Mraiman et al. 2002 states that Zara customers in Spain make on average
D store visits per year).
In addition, products offered by fast fashion retailers during the selling season may result from design
changes decided after the season has started as a response to actual sales information, which
considerably eases the matching of supply with demand (Ghemawat and ueno 2003 report that only D5
20% of Zara's sales are typically generated at marked-down prices compared with 30-40% for most of its
-uropean peers, with an average percentage discount estimated at roughly half of the 30% average for
competing -uropean apparel retailers).
The fast-fashion retail model just described gives rise to several important and novel operational
challenges. The work to be described here, which has been conducted in collaboration with Zara,
addresses in particular the problem of distributing over time a limited amount of merchandise inventory
between all the stores in a retail network. ote that while the general problem just stated is not specific
to fast-fashion retailing, we believe that several features which are specific to this retail paradigm (short
product life cycles, store inventory display policies) do justify new approaches. Indeed, Zara's interest in
this area of collaboration was motivated by its desire to improve the inventory distribution process it was
using at the beginning of our interaction for deciding the quantity of each reference to be included in the
weekly shipment from the warehouse to each store

©ccording to that process, each store manager would receive a weekly statement of the subset of
references available in the central warehouse for which he/she may request a shipment to his/her store.
ote that this weekly statement (dubbed "the other") would thus effectively implement any assortment
decision made by Zara's headquarters for that particular store. It would not mention however the total
quantity of inventory available in the warehouse for each reference listed. ©fter considering the inventory
remaining in their respective stores, store managers would then transmit back requested shipment
quantities (possibly zero) for every size of every one of those references. © team of employees at the
warehouse would then reconcile all those requests by modifying (typically lowering) these shipment
quantities so that the overall quantity shipped for each reference and size was feasible in light of the
remaining warehouse inventory.
©t the beginning of our interaction, Zara expressed some concerns about the process just described,
stating that while it had worked well for the distribution network for which it had been originally
designed, the growth of its network to more than a thousand stores (and recent expansion at a pace of
more than a hundred stores per year) may justify a more scalable process. © first issue centered on the
incentives of store managers, who were primarily rewarded for the total sales achieved in their stores. ëe
believe that as a consequence store managers would frequently request quantities exceeding their true
needs, particularly when suspecting that the warehouse may not hold enough inventory of a top-selling
reference to satisfy all stores (among others, ?achon and Lariviere D999 study a stock rationing model
capturing this behavior). ©nother issue was that store managers are responsible for a large set of
responsibilities beyond determining shipment quantities, including building, sustaining and managing a
team of several dozen sales associates in environments with high employee turnover. Minally, we also
believe that the very large amount of data that the warehouse allocation team was responsible for
reviewing (shipments of several hundred references offered in several sizes to more than a thousand
stores) made it challenging to balance inventory allocations across stores and references in a consistent
way, let alone one that would globally maximize sales. Motivated by these observations, we started
discussing with Zara the alternative process for determining these weekly shipment quantities that is
illustrated in the figure. The new process envisioned consists of using some input from store managers
along with past historical sales to build demand forecasts, and then use these forecasts, the inventory of
each reference and size remaining both in the warehouse and each store, and the assortment decisions as
inputs to an optimization model having shipment quantities as its main decision variables.
~

 
 
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