Managerial finance (I need to answer into 2 questions i) Explain possible methods that could be employed to minimise the amounts of stock being held by a manufacturing company without affecting production by physically running out of any particular item o - Essay Example

Managerial Finance i. There are a number of methods that could be employed to minimize the amounts of stock being held by a manufacturing company without affecting production by physically running out of any particular item of stock. From an overarching perspective, it’s necessary for an organization to consider it’s lead time, as accurately defining this supply chain element aids in determining the specific amount of stock that must be kept on hand (‘Inventory Management,’ 2009). After determining inventory lead times, firms are able to establish demand forecasts.

Demand forecasts can take on a variety of degrees of complexity, as contingent on the nature of the business, and the potential complexity of inputs (Muller 2011). Such inventory that is ordered in anticipation of demand is referred to as anticipatory inventory. More large-scale operations may implement more complex inventory control measures. In these situations, it is necessary for organizations to develop inventory-monitoring practices. A prominent inventory control measure is the ABC method, also known as the Pareto Analysis.

This process divides inventory items along their costs; A items are the most costly, B the middle range, and C, the least costly. Based on a cost basis, the firm then determines how much time and analysis to devote to inventory control. For instance, A items may be ordered frequently, while C items may only be ordered on a quarterly basis. While the ABC method is a prominent inventory management procedure, another potential method is cycle counting. Cycle counting occurs as firms count inventory from one section of the store.

After completing this section they then move to another section. When they have completed this process they begin from the beginning. Ultimately, this allows firms to minimize their stock without having to shut down the entire store to count inventory. ii. Major supermarkets have specific ways of replenishing their stocks on a daily basis. The specific process of mapping inventory differs by the organization. Indeed, a wide-array of inventory control measures exists for grocery chains.

One prominent system is a point of sale process where as items are sold they are digitally recorded in computer database (‘Employing Good Principles Of Inventory Management’, 2007). At the end of the night supermarkets then undergo a process of replenishing stocks, as this is the period when there is limited or no customers in the store. Oftentimes perishable items, including milk or eggs, are restocked during the business day in accord with in-store sales and traffic (‘Employing Good Principles Of Inventory Management’, 2007).

For supermarkets, replenishing stocks on a daily basis is a very important to get right. On one level daily stock replenishment ensures that products are made available for customer purchase. On an organizational level it ensures that the supermarket is able to efficiently and accurately keep inventory control. This allows them to maximize profit through correctly ordering and keeping on hand proper stocks. Finally, in terms of the specific process of inventory replenishment, it is necessary to do this during early morning or late night down periods to ensure that large pallets that would potentially alienate their shopping experience do not encumber customers.

References ‘Employing Good Principles Of Inventory Management’, (2007). Available from:  http://www.inventorymanagement.com/labels/Principles%20of%20Invento ry%20Management.html [Accessed: Feb 1, 2012]. ‘Inventory Management’ (2009). Available from:  http://www.referenceforbusiness.com/management/Int- Loc/Inventory-Management.html [Accessed: Feb 1, 2012]. Muller, M, (2011), Essentials of Inventory Management, Edition of book, Amacom.