The Inventory Control Process of Big D - Assignment Example

? Logistics Management: Inventory Control Grade Introduction Inventory control refers to the process whereby a businessfollows an organised plan to ensure a regular flow of material without allowing the merchandise and raw materials to stock up excessively. From providing an insight into the quantity of the inventories being stocked up to regulating the financial investment in the production and storage process, inventory control gives the business a high turnover rate (Periasamy, 2009). It offers several advantages which translate into better finances. This paper will look into the inventory control process of a business named Big D, highlighting its strengths and weaknesses and providing recommendations for improving it. Improving Inventory Control Before determining the course of action for improving inventory control, a SWOT analysis would be helpful since it would help define the areas the business needs to work on. From the SWOT analysis, it can be ascertained that by bringing certain changes in the inventory control, Big D can improve its working efficiency. First of all, records of all purchases, orders and deliveries should be kept. Second lot of production should not be started till the first has been finished. Products that have been made should not be stored and put on hold till the entire lot has been produced; rather focus should be on preventing excess storage when the products can be delivered timely. Records of previous sales, demand and supply should be used to guide supply for future production and records of each lot's inventories should be maintained. Records should be kept of accumulated parts from previous orders to guide future decisions. Delivery of products with a shorter shelf life and a higher risk of obsolescence should have a higher priority over those products which do not. Records of individual line of products should be kept. If the records suggest that ordering in small quantities is not economical, the business should shift to ordering bulk. Vendors and suppliers must be re-evaluated, and the most economical should be chosen. Records of losses sustained due to pilferage, breakage and misplacement should be noted.  Record Keeping System for Inventory Control The type of recordkeeping that would suit the business will be determined by its requirements and characteristics. Since the business has operations in various aspects of supply and production, a double entry account keeping system would allow it to self-balance its purchases and regulate the flow of inventory. In contrast to a single entry record keeping system, the double entry system is most appropriate for businesses that are aiming to attain efficient financial management (Longenecker, Moore, Palich & Petty, 2006). They would provide greater insight into the functioning of the business which makes the advantages of this system outweigh its disadvantages such as increased time needed to input the information. Moreover, electronic record keeping systems would make the process yet more efficient and so should be preferred over manual records (Moore, Petty, Palich and Longenecker, 2008). Forecasting Inventory Control for Big D Forecasting is an important aspect of inventory management. According to the Business Dictionary (2012), forecasting is defined as “a planning tool that helps management in its attempts to cope with the uncertainty of the future, relying mainly on data from the past and present and analysis of trends”. Forecasting can enable Big D to predict the quantity of the raw materials it requires according to the demand. Deducing a transactions’ trend from previous records, forecasting can help determine the expected demand for goods and to purchase materials in bulk accordingly. By knowing the time it takes for each lot to be completed, it will also allow the business to plan its production run within a time limit. Countering Delivery Delays Transportation delays can be prevented by delivering the completed products as they are produced without waiting for the entire batch to be finished. Moreover, a record of the time it takes to deliver goods can be maintained depending on the location and quantity and size of the orders; reasons which prevent prompt delivery can also be recorded. From the record, the average time required for delivery can be deduced and the forecast used to guide future deliveries. Rationale for Revising Inventory Control Although changes in inventory control would require some of the capital and resources of the business, the opportunity cost of making changes is less than adhering to the conventional management system. Revising the inventory control process will make it more efficient and subsequently decrease the losses to the business. This will translate into higher sales and profits, making the decision economically feasible. Obsolescence will prove to be a challenge that can never be completely eliminated; however it can be curtailed and held to a minimum. Storage for long period of time can be avoided by guiding production according to strict forecasts of demand. Inventory Control for a Single Product The process of inventory control would not have been so complex had the company only managed one product. The demand would have been more predictable. Instead of having a separate account and record for each line of product, all accounts would have been grouped under one product. Single product also demands less frequent monitoring of the inventory as compared to multiple products (Longenecker, Moore, Palich & Petty, 2006). Changes in Inventory Control with Increased Business Volume As the size of a business increases, shifting to an electronic mode of record keeping becomes a necessity. An increase in business volumes will reflect in all aspects of production and supply. The quantity of raw materials required will increase. In order to save up by buying in bulk, the risk of obsolescence will become high. The probability of transportation delays also increases as more number of vendors will be required to cater to the increasing demand. More storage capacity is required. Communication processes need to be revisited and task reassignment would also occur. Warehouse layout will be affected depending on the dominant type of storage (Sadjady, 2011). Advantages of a Supply Chain Management Department Big D can also gain from establishing a supply chain management department. It would offer it advantages like a decrease in costs and an increase in profits. The efficiency of the inventory control process is augmented by supply chain management since it prevents raw materials and products from wasting (Roberts, 2012). It will improve the performance of the business, cut down on delivery delays and gain customers’ trust. Supply chain management department should be responsible for the receipt of raw materials and their storage and delivery. Delivery of goods would especially be important for just-in-time products. It should also be responsible for dealings with vendors and distributors. Conclusion Thus, in conclusion, Big D can gain significantly from restructuring its inventory management. This would boast its efficiency, resulting in lower costs and wastage and higher profits. It would also help gain the trust of the customers. The process of inventory control can be improved by maintaining a detailed record of every transaction made and the products ordered. The trends in the prices and quantity of the ordered products can help forecast future requirements and plan investment accordingly. If an increased demand is expected, ordering in bulk can be economically feasible. With reduced demand, limited amount of goods can be ordered and the problem of accumulation solved. By setting strict deadlines, production can be completed on time and mismanagement leading to obsolescence can be prevented. These measures will enable Big D to efficiently manage its accounts and gain an edge over its competitors. References Business Dictionary, 2012. Forecasting. [online] Available at: [Accessed 24 September 2012]. Longenecker, J.G., Moore, C.W., Palich, L.E. & Petty, J.W., 2006. Small Business Management: An Entrepreneurial Emphasis, Volume 1. Ohio: Cengage Learning. Moore, C.W., Petty, J.W., Palich, L.E. & Longenecker, J.G., 2008. Managing Small Business. 14th ed. Ohio: Cengage Learning EMEA. Periasamy, P., 2009. Financial Management. 2nd ed. New Delhi: Tata McGraw-Hill Education Private Limited. Roberts, S., 2012. The Advantages of the Supply Chain Management for Small Companies. [online] Available at: [Accessed 24 September 2012]. Sadjady, H., 2011. Physical Flows. In: R. Farahani, S. Rezapour & L. Kardar, eds. 2011. Logistics Operations and Management: Concepts and Models. Massachusetts: Elsevier. Ch.2. Read More