Inventory Administration Principles - Essay Example

Inventory Management Types of inventories and inventory characteristics Inventories can be ified as an investment made by the firm in order to accomplish set objectives. It is an idle asset of an organization and is often not regarded as an integral part of business operations. Manufacturing firms usually possesses similar types of inventories so as to sustain overall operations. Two manufacturing firms have been chosen for this study – Toyota and Samsung. Both these companies operate in different domain like Toyota is a leading manufacturer in automobile sector and Samsung has set its mark in electronic industry. Toyota maintains three main types of inventory that is raw materials, work-in-progress and finished goods. The company needs to take into consideration growing competition while framing strategies for inventory management. On the other hand, Samsung encompasses four main inventory types in production cycle which are raw materials, work-in-progress, buffer inventory and finished goods. Each of these inventories possesses similar characteristics in both these companies. Raw materials are those inventories that are extracted from suppliers so as to produce components, subassemblies, etc. For Toyota it is basic material utilized to manufacture finished goods and for Samsung it represents inventory to be transformed into electrical goods (Lambert and Pohlen, 2001). Work-in-progress comprises of materials, subassemblies, assemblies and components that are on hold to be processed within a system. This inventory type for both manufacturing firms is kept aside for final inspection before it is being included into batch of final goods. Finished goods are an inventory type which has qualified inspection stage and is ready to be delivered to end customers. Buffer inventory is specifically maintained by Samsung. It represents inventory cushion to address market uncertainty in terms of supply and demand or appears to be a protection against poor delivery of suppliers. Goods and service design concepts Goods and service design is effectively developed at Toyota. Their operational procedure usually starts from procurement of raw materials to manufacturing of finished goods. Just in Time approach is maintained throughout production process where focus is on low cost and best quality. This concept even facilitates minimum lead time where inventory is processed into final goods rapidly. Toyota has incorporated the concept Toyota Way so as to give dealers and suppliers liberty to structure decision and become proactive by nature. Integration of goods and service design in this company is further elaborated in figure 1. Figure 1: Integration at Toyota (Source: Sodhi and Tang, 2012) As per figure1, goods design at Toyota is centered towards developing safe vehicles through procuring quality raw materials from suppliers. The company’s operational procedure is not limited to production process but it extends to efficient after-sales service. Samsung manage its goods and service design on basis of three dimensions like supply management, resource management and demand management. Integration amongst service and goods design has been outlined in figure 2. Figure 2: Samsungs Supply Chain Management (Source: Sodhi and Tang, 2012) Procurement activities are initiated through bringing in collaboration between manufacturing headquarter and suppliers. The focus is on sustaining on-time supply where demand is addressed appropriately through managing safety stock (Marksberry, 2012). Customers are offered products along with value added services. Reverse logistics forms an integral part of such services being offered to customers. Role their inventory plays in company’s performance Toyota was initially the first company to introduce the concept of just-in-time within business operations. The main area of concern of this firm is to manufacture products as per market demand. Inventory plays a significant role in enhancing the company’s performance. Toyota is able to offer quality products to customers with the help of proper inventory management. The company aligns its suppliers with common goal in order to deliver quality raw material for production of finished goods. This in turn enables acquiring desirable market share and thereby increasing performance level of the company. Inventory contributes towards Toyota’s operational efficiency in terms of delivery of quality goods, reduction in waste, decreased lead times and ongoing inspection procedure. On the other hand, higher levels of customer satisfaction are achieved through delivery of products on time which can be done through efficient inventory management. Samsung is also known for maintaining different types of inventories and it has contributed towards their overall performance. It is being able to retain market share with the support of buffer inventory (Mitra, 2012). This facilitates the firm to address any form of market uncertainties in context of supply and demand. Customer satisfaction level is also increased due to easy availability of products. Quality stock also enhances operational efficiency due to less number of good rejections in inspection stage. It can be stated that inventory sustains operational efficiency during crisis conditions when demand is high and there is stiff competition in the market place. Different types of layouts There are different types of layouts which are utilized in manufacturing companies. These layouts can be classified as process layout, product layout, combination layout, fixed position layout and group layout. To be more precise certain layouts are applicable for manufacturing operations exhibited at Toyota. They are process layout, product, combination and group layout. For instance, process layout is utilized by this manufacturing firm where all machines performing similar functions are grouped together. Product layout states that machines will be organized as per product sequence. Matrix layout is incorporated by Toyota when similar product is being manufactured in different sizes. Group or cellular layout is greatly used in Toyota as it helps to reduce overall lead time. In this mechanism dissimilar machines are grouped together to perform tasks associated with products sharing common interests. The most effective layout amongst these is matrix layout since it combines the concept of product and process layout. On the other hand, Samsung encompasses product layout, fixed position, process layout and cellular layout. Product layout enables the company to transform raw materials into finished goods in least time possible. On the contrary, process layout increases manufacturing efficiency since production volume is restricted and there is increased efficiency in terms of material handling (Cannella and Ciancimino, 2010). Fixed position layout cannot be considered appropriate for large volumes of production but it is required during manufacturing heavy electrical items. Samsung utilizes this concept during production of heavy items since it facilitates reduction of overall transportation costs. Cellular layout supports the firm to manufacture products of common interests without any delay during moving products through different machinery. Evaluation of supply chain performance There are wide array of metrics that are implemented by companies so as to evaluate their supply chain performance. Two metrics most suitable for manufacturing companies like Samsung and Toyota are on time delivery or shipping and backorder reporting. On time delivery metrics outline positive results for Toyota since the company had adopted the approach of just in time. In most scenarios the company has been able to deliver demanded products to end customers. They work in collaboration with suppliers and retailers to manufacture or deliver goods as per market demand. Backorder reporting metrics states that customer demand remains unfulfilled. There are cases witnessed with Toyota where JIT approach limited the firm to satisfy uncertain market demand. Toyota should be able to address such demand as it enhances level of customer satisfaction. It needs to maintain safety stock within the firm so as to retain market share and deliver ordered products on time. On basis of chosen metrics, Samsung has no such issues on backorder reporting. There is buffer inventory present in this company which is often considered as safety stock. In overall context, this kind of stock helps a firm to stay ahead of competition (Behnam, 2013). However on time delivery is an issue for Samsung and this in turn results into unsatisfied customers. The company should incorporate advanced technology in context of tracking order and transmitting messages to respective departments. The supply chain management process of the company needs to comprise of minimum time so that products are delivered on time. Suggest ways to improve the inventory management Toyota’s inventory management is well-known since it has incorporated innovative approaches such as Kanben or Just in Time approach. It can be stated that Toyota aligns its business operations with forecast report of market demand. This restricts the company to satisfy hidden demand of consumer market. Just in Time approach is beneficial for the company but Toyota needs to focus more on efficiently handling inventory. This shall prevent any form of backorder reporting for the organization. Products will be manufactured and delivered within requested time along with maintaining buffer inventory to mitigate market uncertainties. The company needs to regulate inventory costs through eliminating waste materials and storing raw materials which can be transformed into finished goods as and when required. On the other hand, Samsung can eliminate the issue of late delivery through paying more attention on inventory cycle time. This mainly indicates minimizing the time required during production stage to delivery of finished goods. Cycle time maintenance can be achieved through dividing operations into various sub categories. Each of these sub sections shall be responsible for completing certain percentage of finished goods and then it will be transferred into aligning section. To certain extent the company needs to implement lean manufacturing. This would enable the company to focus on quality, least time in manufacturing process and delivering goods to customers on time without any such delay. Just in Time approach shall also help the firm in terms of efficiently handling inventory and delivering products to end customers. References Behnam, M. (2013). Operations and production systems with multiple objectives. New Jersey: John Wiley & Sons. Cannella, S. and Ciancimino, E. (2010). Advanced manufacturing and sustainable logistics. Germany: Springer-Verlag Berlin Heidelberg. Lambert, D. and Pohlen, T. (2001). Supply chain metrics. The International Journal of Logistics Management, 12 (1), pp. 1 – 19. Marksberry, P. (2012). The modern theory of the Toyota production system. London: CRC Press. Mitra, A. (2012). Fundamentals of quality control and improvement. New Jersey: John Wiley & Sons. Sodhi, M. S. and Tang, C. S. (2012). Managing supply chain risk. 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