PPT needed

TERM PAPER: RIGHT INVENTORY LEVELS IN INDUSTRY 2

Graduate Term Paper

Maintaining the Right Inventory Levels in The Industry

Abstract

An inventory management system is a useful tool that business organizations in the production process may use to control their balances between cash and stock. Surplus stock or deficits in stocks are normally hindering efficient production. This calls for the need to create and sustain a perfect balance between what is produced and what is to be sold in the market. Such control is harder to achieve in a market that has a lot of dynamics and uncertainties. In the end, there are always attempts to have surplus inventory or deficits in the inventory. The more accurate a company manages to create a balanced control of inventory and cash, the more it realizes efficiency in the production process. Other traditional manual technologies that have been used over the years have become redundant and less accurate. Therefore, there is an increasing need for manufacturing organizations to create viable and workable solutions that would be ideal for improved financial propriety. Modern technological solutions that can be applied in the use of a quality inventory management system must be devised as well. This is achievable through the use of business intelligence systems.

Table of Contents

1.0 Introduction to Inventory Items in Organizations

4

1.1 The Need for Creating Efficiency in The Production Process

5

1.2 Core Elements of Inventory Products

6

2.0 Inventory Control and Its Effects on Manufacturing Productivity

9

2.1 Relations of Inventory Management and Flow Control to Production Efficiency

9

2.2 Determination of Income Levels For The Producing Businesses

12

3.0 Modern Processes to Addressing Inventory Control Systems

15

3.1 Modern Solutions to The Inventory Management Needs

15

3.2 Improving the Level of Inventory Policy for The Producing Business Organizations

16

3.3 Key Requirements to Managing Inventory

17

3.4 What Companies Are Doing Today

18

3.5 Roles of A Manager in Deploying the Technology-Centric Inventory Control

19

4.0 Summary and Conclusions

23

Maintaining the Right Inventory Levels in The Industry

1.0 Introduction to Inventory Items in Organizations

Just in time production ensures that optimal resources are used to produce just enough units that would address the market needs. However, what remains a major challenge to producers is the ability and the need to perfectly balance the market needs and the production levels for the produce. The market is dynamic, and so is customer demand (Jin, 2018). Changes in the market related to customer demands cannot be accurately modeled and developed with sufficient certainty. Therefore, there are times when organizations find that they underproduce, and so some customers remain underserved. In other cases, some other companies have found that they have overproduced, and so they experience money held in stocks and inventories.
The ability to make accurate balancing of inventories and the market needs is the major business production challenge that will get the utmost exploration and attention in this case study project. This project explores and considers the need to have a balanced and well-coordinated production and the market needs through the use of technological solutions that would improve the accuracy of predicting market changes and variables. It follows and discusses the various kinds of inventories, the need for inventory management on the production systems and analyzing what has always been done to improve the level of inventory management capabilities (Jin, 2018). These are done with the intention and focus into exploring what can be put into proper use in the future to even further improve the level of inventory level management needs and solutions in the production and distribution sphere. The target is always to create efficiency in the production process that leads to increased profitability and the suitability of the organizations.

1.1 The Need for Creating Efficiency in The Production Process

Lean operations are hailed as one of the key attributes of modern sustainable organizations. However, lean production is not always easy to achieve owing to the challenges that are commonly realized in the inventory management concepts. According to Stock and Seliger (2016) inventory challenges are common in the manufacturing industry, thus challenging the success of the manufacturing business organizations. Manufacturers always want to produce as much as possible, but their efforts are always curtailed by the restrictions in the market determine through the laws of demand and supply. Moreover, overproduction would see the business accumulate more stock in inventory that may tie down large positions of operating capital, hence introducing liquidity problems. When companies produce less, they may underserve the market (Bates, Bradford, & Jackson, 2018). Such a situation does not only reduce their profit margins, but they also contribute to poor brand identity and reliability index of the business. Therefore, it is not able to realize the difficulty for manufacturers to stay organized and calm amid chaos
According to Wild (2017) inventory is several goods owned and stored by a business used to create other goods and services or meant for resale. This means that in all the cases, inventory does not stay for longer in the business organizations. They are meant to hold cash for a shorter period before the stock is reconverted to cash and used for business working capital. As such, the faster the inventory can be converted to liquids cash the higher the business becomes liquid. As a result, it is always possible for the business to be able to meet the emerging financial needs in its operations. Some financial needs can be planned, but many others can be emerging. Various categories of the items that can be considered under inventory include such items as property, goods in stock, or the contents of a building.
Ideally, Gitau (2016) posited that the inventory items can be categorized into four major areas including those that are used as raw materials, those considered work-in-process, the finished goods, and in the last category are the MRO goods. MRO elements in the category of inventory include such items used for maintenance, repair, and operations of goods. Langenwalter (2019) defines the MRO goods as those products and tools purchased that keep an organization running efficiently and in the most possible cost-effective way. The idea of optimality and lean attainment of the organization’s operationality remains a core factor in the development of the organizational inventory systems. This is the major concern of most organizations that must ensure that the resources available in the organization are used optimally despite their limited supply (Bates, Bradford, & Jackson, 2018). Various initiatives, tools, and frameworks should be in place for the management of inventory. Even if it means the use of the most modern technological innovations, there should always be the use of the right approach that would ensure inventory management and optimization are put into proper use and considerations.

1.2 Core Elements of Inventory Products

The raw materials are part of the inventory that is used to create other inventories. They are purchased with an intention of value addition before they are resold as products with higher utility. In some other cases, the raw materials can also be purchased to be used in the value addition process. All the inventories purchased to create higher-value products fall in the category of the raw material inventories. They are useful in ensuring that the production process does not suffer insufficient raw materials. Notably, organizations should ensure that they have sufficient raw materials for their production requirements (Govindan, 2018). Low or insufficient raw materials would always mean that the production process is hampered. On the other hand, organizations must ensure that they do note overstock their raw material inventories. Such overstocking may mean that a lot of cash is held up in the raw material inventories, hence challenging the success of the operational process for the common due to liquidity problems.
Similarly, some inventories are considered to work in progress. These are the products that are in the process of production but they are not yet complete for sale. The companies that hold such kind of inventories must always pay the price of holding inventories as part of the work in progress elements. The need to balance the work in progress inventory stems from the need to have a quality flow control and efficiency in the production process. The work in progress subset of inventory is useful in determining how the balancing of the purchases of the raw materials are created with the focused determination of the market demands (Nagle & Müller, 2017). The organization must, therefore, ensure the perfect balancing of the raw materials, the work in progress and the market needs to reduce cases of inventory control flaws. Such balancing would be difficult to control manually through the physical observation of the market dynamics, but the use of modeling, intelligent and data forecasting software would be useful in the modern production environments.
The finished goods are the products that have been completed and packed ready for distribution. Every company should ensure it is sufficiently ready to sell products to satisfy all the customer orders. The companies must, therefore, determine their production capacity over the desired period and quantify how much they can supply in the market in such a period (Nagle & Müller, 2017). For instance, if the business needs to produce enough for the market, it must ensure that there is quality control in the production output concerning the market demands. The production capacity can be examined and quantified daily, weekly, monthly, quarterly or even yearly. The demand in the market should match the quantified period. A lot of stock inventory in the company storehouses poses great challenges to organizational management. First, the company incus a high cost of keeping them in terms of storage and care costs. In some cases, more time on the stores may mean that products go bad if they are perishable. Even if they are durable, the longer shelf life would mean that they depreciate. They can even be overtaken by technological solutions that would render them obsolete from the company godowns (Musavi, 2019). This again outlines the reason why the production company must ensure there is the perfect balancing of the finished products available and the market demands.
In the last category of the inventory are the maintenance, repair, and operations of goods, commonly referred to as the MRO products. These are the products that the company purchases to create repairs or to be used for maintenance services (Jung et al., 2018). In other cases, they can also be used for operational activities. The spare parts that a company may purchase to keep for replacing the work out machine parts form part of the useful MRO category of inventory. In some cases, companies that are preceptive and careful risk-takers may even purchase whole machines and keep it to be used in case the one in operations fails. Such kind of careful measures is useful for continual operations in the production process. However, caution should always be given that their cost should not make the company experience liquidity problems. The purchase and storage of the MRO products in the business, therefore, must also be controlled for optimal balancing of the production efficiency.

2.0 Inventory Control and Its Effects on Manufacturing Productivity

The issue under investigation is the current project is the element of inventory control. The impacts on the production productivity realized through effective inventory control are the realized production efficiency, lean production, and optimal production (Korchagin, Deniskina, & Fateeva, 2019). The key focus is to reduce wastages in the production process while minimizing the costs of production activities. Further, inventory control is also useful in ensuring that the business increases its profits margins in the uncertain market.
It is possible through the harnessed analysis of the market variables and presenting them in a coherent system that lets the production team know what to produce and when to produce it. Moreover, it would be useful in ensuring that the business becomes realizable by satisfying all the customer needs, hence improved brand equity. Business organizations that have achieved success in the flow control systems of their inventory can manage to ensure that they balance uncertainties and realities in the market (Korchagin, Deniskina, & Fateeva, 2019). The essence is to ensure that the number of variances of deviations from planned and actualized organizational goals is minimalized for optimized growth.

2.1 Relations of Inventory Management and Flow Control to Production Efficiency

As illustrated, one of the key elements that have given organizations in the inventory flow control systems has been the JIT. Those companies that make use of JIT infrastructure or models ensuring that ordering inventory by the producing organizations are based on the need’s basis (Phogat & Gupta, 2017). This means that whatever is produced should be used for the benefit of the organization at the time it is produced. The preceptive holding of stock, assets, and inventory is discouraged as it contributes towards business liquidity problems. As a result, the company must ensure there is created and controlled stock-flow control systems that create sustained optimal operations. This is the way to realize lean and cost-effective operations in the course of the business’s operational needs. Further, it reduces inventory carrying and storage costs. It increases the affiance element in the production process and it is useful in decreasing waste.
Therefore, organizations that have identified their operational elements based on the controlled flow control of inventory can increase the profit margins, and experience lower liquidity problems. The use of the JIT models has been in use for a long time. Its initial introduction to the business productional quarters dates back to the 1970s when Toyota introduced it in the production process (Phogat & Gupta, 2017). Since it worked well, many companies adopted the same and have diversified, modified and improve the model. It is useful in addressing and meeting both the customer needs and the organizational needs at the same time. However, the modern production fields have introduced greater challenges orchestrated by the dynamics of the operational environments and markets. As a result, JIT has not been overly successful, necessitating the need for a change of strategy or improvements of the same. Deploying technological solutions in the production process is taunted as one of the greatest processes that can be reached to improve inventory management needs (Lyu et al., 2020).
The market dynamics today are more unpredictable making the JIT model less accurate. At the same time, it is important and useful to improve the quality of the inventory tracking systems from the raw materials to the finished products (Pheng & Meng, 2018). Intelligence systems available in the modern production systems can be of great use when deployed succinctly. This creates several beneficial elements that have been integrated into the technology-controlled production process that uses intelligence systems to track, control and report the inventory levels in the business organizations.
One of the key models that have found great traction in the modern operational environment is the use of inventory control systems through LIFO, FIFO and average costs (Ching, Mutuc, & Jose, 2019). Organizations that track their inventory systems through the intelligence platforms must, therefore, understand the model they would deploy. They then program their intelligence systems to track the inventory elements either through the FIFO or LIFO or average costing. The FIFO model is the First-in, First-Out (FIFO) model. It is useful in ensuring that the first to be purchased inventory is the first to be consumed. It is useful in cases where the inventory elements can be perishable and thus can go bad after purchase. When this model is put to proper use based on useful modifications, then it becomes possible to program the intelligence Softwares to begin counting the inventory from the first, and chronologically arranges them into a system for control (Ching, Mutuc, & Jose, 2019). Once completed, the system can then be used to control the organizational inventory flow control process.
Other companies make use of Last-in, First-Out (LIFO) and Average cost in the inventory modeling and control. When these are put into the inventory control intelligence systems, then they must be programmed as well. As a result, it becomes useful for the organization to address its operations based on the programmed model. The Last-in, First-Out (LIFO) model dictates that the latest inventory to be purchased is open that should be used first in the production process (Ching, Mutuc, & Jose, 2019). On average inventory management, it is possible to program the intelligence systems to help in the provision of quality tracing of the key elements used in the process. At the end of the day, it is possible to make use of the enhanced inventory management systems that would lead to the improved systematic flow control for the inventories. The ultimate goals are to create a system that would be ideal for the realized and the developed solution for the desired inventories. As long as the business can address the inventory control elements in the organization effectively, it becomes a useful tool for improved profitability and enhanced solution for inventory control.

2.2 Determination of Income Levels For The Producing Businesses

The principal role of organizational operations is to make profits. Therefore, every organization must always ensure that the profit position is ascertained at any given point in time. It is always possible to create and improve the success of the business organization based on how well it can increase the profit margins through reduced cost levels. Therefore, another major objective of the inventory control process is to ensure that the level of income is accurately determined and ascertained at all the time. Ensuring that the profit position is leveraged and elements that would reduce it are also reduced would add significantly to the success of the business organization. The inventory control system must, therefore, be useful in the process of matching appropriate costs against revenues. According to Abrate, Nicolau, and Viglia (2019), this is a process for calculating gross profit by deducting the cost of goods sold from sales. To the inventory control team, the process is not only useful in determining the level of revenues but also how well the organization can address its core operational efficiency. Further control of the inventory must consider more profit control attributes. The users of the inventory control model must also have sufficient knowledge that the cost of goods sold is purchases plus opening stock minus closing stock (Balata & Palczewski, 2017).
Determination of the organization’s income is based on the same principle that Inventory management was realized to be important to small businesses. According to Shenoy, and Rosas (2018), the inventory control process was important to small and medium businesses because it helps them prevent stockouts, manage multiple locations, and ensure accurate recordkeeping. Stockouts is a situation where the customers demand the products through customer orders and the business is not in a position to deliver such orders. It happens when the business underestimates purchases, and thus has less raw materials available for the production process. Those organizations that have branches can also have a synchronized system that follows and controls their inventory flow during the stock management process (Shenoy and Rosas, 2018). This is an important attribute that ultimately ensures open control that ropes in all the departmental produces as well as the production in different locations. In every instance, there is always a set of records kept and used in the production process. The business can thus make use of such records to compare their performance in different financial years, plan for the future and create accurate financial accounting reporting. It all sums up to one major concept that the inventory flow control system is important to the business organizations.
The major challenge is that the existing methods are not sufficient in creating the most accurate and effective inventory control management framework. The main focus of the inventory systems, therefore, is to make the process of profits determination easier than doing them all manually (Robinson, 2017). There are majorly two main types of inventory accounting systems that most business organizations may use to exploit their inventory management solutions. Some organizations may opt for a periodic system and yet others may opt for the perpetual system. The periodic inventory system is used for inexpensive goods that the organization uses to focus on the larger market. The perpetual inventory accounting system may be used for the premium goods that have lower sales in the market but with higher values per unit sales.
In summary, the use of an accurate and invaluable inventory management system would be ideal for business organizational success. The successful management of inventory would mean that the business organization can accurately plan for efficient and effective operations in the market (Robinson, 2017). The business organizations would be able to carefully address their challenges and take up any window of opportunity that may arise. Further, it will mean that the business will be more reliable in the market, more profitable and more sustainable in the long run. Further, effective management of the inventory control system would be a useful tool that would further lead to a successful implementation of the organizational plans, review them and ensure that they are evaluated against performance (Shenoy and Rosas, 2018). Inventory management control must thus be undertaken by every business organization that would ultimately ensure success in the market.

3.0 Modern Processes to Addressing Inventory Control Systems

In the contemporary business environment is faced with several challenges that have equally challenge organizational performances. The modern economic climate is controlled by situations that put the business organization to cut-throat competitive environments (Bukola, Abosede, & Adesola, 2019). The resources used as raw materials have become scarcer. The ideas that businesses can elevate upon have become more open hence a lack of unique operational ability. Additionally, the governments through the agencies and policies have also come in to control the operations of business organizations in their environments (Bukola, Abosede, & Adesola, 2019). Customers have access to enormous sets of information that can make the change their purchase decisions even at the point of sale. Additionally, the available information makes the customers have access to large amounts of comparable products that leads to higher competitiveness.
In the end, the business environment has encountered harsh environments that challenge their growth prospects. There are cases where business organizations have been challenged to maintain a continuous flow of activities. Further, there are cases where business organizations have missed the key raw materials that would be vital to sustaining the production stream. All these external macro market factors impact on the production process. The use of traditional models like JIT can no longer work because they have no productive modeling capabilities. Their accuracies have been dependent on the board meetings decisions and personal reviews (Appelbaum et al., 2017). This explains why it is important to make use of intelligence information technologies in inventory management and control.

3.1 Modern Solutions to The Inventory Management Needs

To help maintain the right inventory levels, manufacturers can use real-time tracking throughout the whole production process. Through serialized barcode, it’s possible to see the location and quantity of goods. The tracking software can provide precise updates of raw materials, work-in-progress and finished products. It’s possible from this to keep inventory accuracy at an all-time high level. Apart from the bar codes, the modern information technology users in the production systems have also introduced the use of enterprise resources planning (ERP) models, decision support Systems (DSS) and executive information systems (EIS) to provide additional support in prudent and ambient decision making for inventory control and management (Appelbaum et al., 2017). Further, Radio Frequency identification technologies have also been used to accurately identify the stock levels in various stages of the production chain. What the organizations have today at their disposal is a set of high-level intelligence models that can improve the level of inventory management.
One of the platforms available for use is business intelligence systems. In the implementation of the BI systems in inventory control and management, it becomes possible to have a modular and objective control of the inventory (Bukola, Abosede, & Adesola, 2019). The advantage of the intelligence systems is that its integrations both the internal and the external business environment in the decision-making process to come up with a fairer view of the solutions. For instance, it integrates an objective analysis of the customer’s purchase patterns, disposable income, changes in the economic structures and combines them with the internal factors like machine efficiency to determine the amount of optimal production. Further, the use of the business intelligence systems also ropes in other elements in the market like the level of marketing budget and the trends in the organizational product purchases. If there is a need to create better control and management of inventory, then business intelligence must be an integral component of the same (Richards et al., 2019).

3.2 Improving the Level of Inventory Policy for The Producing Business Organizations

In every organization, one of the core elements of the organizational culture is the definition and strict adherent to the inventory control policy. Inventory policies are internal organizational operational management tools that help in defining what needs to be done, when, by who, using what materials and how they should be done. Moreover, the inventory policies define who is responsible for the purchase process and the sales process. It also addresses who is responsible for taking customer orders and who is also responsible for financing the purchases (Richards et al., 2019). The inventory control policies define the rules and regulations that help in creating empirical traction on the paths pf the inventories from the time of purchase to the point of sales. The key focus on using the inventory control systems is to reduce ambiguous statements and elements that may only work to challenge the effective understanding of the inventory levels of the business organizations
Inventory policy is an integral part of inventory management. It helps manage stock flow in a better manner. Inventory control systems take an accurate measure of the current assets, inventory in reserve, and provide a better idea about the financial condition of the business organization at any given time (Bordeleau, Mosconi, & Santa-Eulalia, 2018). Therefore, it was also useful to note that success in the organizational inventory management level would only be attained if the inventory policy is well thought out, well defined, implemented and evaluated. Constant reviews of the inventory management policies will ensure that no one relents on the focus and implementation or application of the organizational solutions directed at solving.

3.3 Key Requirements to Managing Inventory

The organizational managers, especially the operations managers are in charge of the inventory control in the production process. They must work with other key departmental heads like the chief financial officer, the sales and marketing managers as well as the technology offices (Goul, Raghu, & St Louis, 2018). However, whatever they do remains basic and focused on ensuring that inventory control is prudently managed and sustained. There is a need to ensure that the team obtains the total valuation of beginning inventory for planning purposes, ending inventory for counterchecking with planned milestones, and the cost of goods sold for the determination of the profitability and efficiency index (Richards et al., 2019). Once the value of inventory is determined objectively, the team can subtract beginning inventory from ending inventory to determine the amount of inventory that needs to be in control. When the team manages to add the cost of goods sold to the difference between the ending and beginning inventories, they get the …