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Global operation and supply chain - Essay Example

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Inventory (stock) management refers to the process of effectively and efficiently overseeing the constant flow of units in and out of an existing inventory. It involves controlling the transferred units in order and ensures the inventory is not too high or dwindling levels that…
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GLOBAL OPERATION AND SUPPLY CHAIN By of the of the School Inventory management
Introduction
Inventory (stock) management refers to the process of effectively and efficiently overseeing the constant flow of units in and out of an existing inventory. It involves controlling the transferred units in order and ensures the inventory is not too high or dwindling levels that can jeopardize operations of the company (Anderson and Narus, 2011: 95). To effectively manage inventory every enterprise needs inventory for the smooth running of its undertakings and activities. Inventory serves as a link between the production and the distribution process.
Inventory can be referred to as the quantity of goods and materials on hand.  A stock includes finished products, goods undergoing production process, and raw materials. The main purpose of inventory management is to keep enough inventories to meet customer demand, maintain independence of operations, allow flexibility in product scheduling and be cost effective (Allen, 2008: 881).  Inventory management usually ensure the availability of raw materials in sufficient quality and quantity, thus it is of great importance to have a proper control and management inventory (Axs.ater, 2010: 1329). Inventory management is necessary as it prevents leakage, deterioration, spoilage and wastage of materials. Its aim is to improve material handling, saving in material cost, increase production and large profits (Allen, 2008: 883).
Inventory values change according to price fluctuations.  There are different methods of valuing inventories used by public and private companies namely:
First-In, First-Out method: this is a method of valuing the cost of goods sold that uses the cost of the oldest items in inventory first.  This is based on the assumption that goods that are sold or used first are those goods that are bought first (Axs.ater, 2010: 1330). 
Last-In, First-Out method: This is an inventory valuing method that assumes that the last items placed in inventory are the first sold.  Therefore, when the Last in First Out method is applied, the year-end inventory consists of the goods placed in inventory at the beginning of the year, rather than at the end.  During inflation, when prices are rising, this method yields a lower ending inventory, lower gross profit, higher cost of goods sold and a lower taxable income (Anderson and Narus, 2011: 99).  This method is preferred because it reduces a company’s taxes and increases cash flow.
Specific Identification method: this is the simplest method of valuing inventories.  The sale of inventory requires the inventory account to be credited or reduced, and cost of goods sold should be debited or increased for the amount paid for each inventory item.  This method works effectively when a company knows the cost of every single item that is sold (Allen, 2008: 881).  
Average Cost method: the average cost method takes the average of all units available for sale during the accounting period.  It usually uses the average cost to determine the value of the cost of goods sold and ending inventory.
Supply Chain Inventory Models
Supply chain inventory is a system that is coordinated by stakeholders that are included in the movement of a product in a physical and virtual way to the client. It bridges the inventory management focus in operations management and the analysis of relationships from industrial organization (Axs.ater, 2010: 1335). The models are;
Single-period Inventory models
This is a model used to identify the amount of inventory to purchase given a single opportunity. For example the overbooking of airline seats or hotels rooms and one time order (t-shirts for a sporting event) (Allen, 2008: 882).
Multi-periodinventory models
In a multi-period model, all the items unsold at the end of one period are available in the next period. This model is event triggered. They include fixed order quantity model and fixed time period model (Anderson and Narus, 2011: 102). Whereby in fixed time period model purchase order is issued at a fixed interval of time whereas fixed order quantity model purchase order can be placed at any time on hand inventory count is known always (Barratt, 2004: 38).
Multi-period models comparison.
Fixed-order quantity
Fixed-time period
Inventory remaining must be continually monitored
Counting takes place only at the end of the review period
Has a smaller average inventory
Has a larger average inventory
Favors more expensive items
Favors less expensive items
Is more appropriate for important items
Is sufficient for less important items
Is more expensive to implement
Less expensive to implement
Requires more time to maintain
Requires less time to maintain
Economic order quantity (EOQ)
This is a model that is used to determine the optimal order size that minimizes total inventory cost. The EOQ model formula has a set of simplifying and restrictive assumptions as follows: The order quantity is received all at once, lead time for the receipt of orders is constant, and no shortages are allowed.an order quantity, Q, is used up over time at a constant rate (Axs.ater, 2010: 1329). A reduction in the inventory level below the recorder point, R, requires a new order to be placed. The lead time is often required for delivery. The receipt of the should occur all at once just at the moment when demand depletes the entire stock of inventory the inventory level reaches 0 so there will be no shortages. The inventory replenishment cycle is continuously repeated for the same order quantity, lead time, and reorder point (Anderson and Narus, 2011: 95).
Demand types
Inventory items can be divided into Independent demand and dependent demand items. The two classic systems for managing independent demand inventory are periodic review and perpetual review systems (Barratt, 2004: 31).
Independent demand this refers to the demands for various items that are unrelated to each other. For instance, a workstation might manufucture many parts that are unrelated but meet some external demand requirement (Allen, 2008: 881)
Dependent item is an item whose demand istied directly to the demand or production level of another item.Depedant item is where the need for any one item is a direct result of the need for some other item (Barratt, 2004: 31).
Conclusion
In conclusion the main objective of inventory management is to employ a control system that will show how much should be ordered, when the orders are needed so that the sum of the inventory costs will be minimized. An inventory management system controls the level of inventory by determining how much to order and when. There are two types of inventory systems: a continuous system and a periodic system. In continuous system, an order is placed for the same amount that is constant whenever the inventory on hand decreases to a certain level, however, in a periodic system; orders are placed for a variable amount after specific regular intervals.
References
Anderson, J.C. and Narus, J.A. (2011), “Partnering as a focused market strategy”, California Management Review, Vol. 33 No. 3, pp. 95-113.
Allen, S.G., D’Esopo, D.A., 2008. An ordering policy for stock items when delivery can be expedited. Operations Research 16, 880–883.
Axs.ater, S., 2010.Modelling emergency lateral transshipments in inventory systems. Management Science 36,1329–1338.
Barratt, M. (2004), “Understanding the meaning of collaboration in the supply chain”, SupplyChain Management: An International Journal, Vol. 9 No. 1, pp. 30-42. Read More
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