Inventory Management - Almarai Company - Case Study Example

INVENTORY MANAGEMENT SYSTEM Name: Institution: Date: An inventory management system is a system that is responsible for controlling and overseeing ordering of items. It also used when storing and using or selling of the stock in a company or an industry. This is most important in an industry as well as in a large shop in the supermarkets to avoid wastage. It helps in overseeing the quantities for production and finished products for sale. A business inventory system is the major assets of the company and represents where the items used in the production and the items sold are well managed. Storage of items is expensive as well as insuring the inventory. Mismanagement of the stock is very expensive for the company and creates a very major financial problem for a business. This is either through inventory shortage or inventory glut (Waters, 1992). A good inventory system helps in the purchasing plan of the company and ensures that the items that are required are available when needed. It also ensures that the items are neither too much too little when being bought nor are they too much to create wastage. The system also keeps track of the inventory available which and when to use. It is also salient to note that most companies use two types of the inventory system. The first one of the most common inventory management systems is just-in-time method. In this kind of arrangement, the companies can have a plan to receive the items needed just in time when the items are required (Axsäter, 2006). This is a right kind of management of the inventory as it helps to reduce wastage and also reduces the cost of storage. The second most common inventory system is the materials requirement planning. In this type of management system, the order and deliveries of material are based on the company’s projection of sales. The company makes a sales forecast and order the items required. The benefit of this type of system is the fact that the enterprise does not have a shortage of the materials needed. However, the company may have an excess if the sales projection is not correct (Horn, 1970). A good inventory management system for Almarai Company should be put in place. This helps the company to have a good way of managing their stock. Almarai Company is a company that produces several types of dairy products. The company at this time is facing a challenge to their inventory management system where the company is facing a lot of return inwards. The system of the company requires to be changed or to have a whole overview of the system so that they may try to avoid the return inwards (Al-Jaoua, 2010). Almarai does not use an inventory management system and only relies on the store supervisors to manage their stock. This form of management of stock is dangerous to Almarai as it leads to the losses experienced. According to one of the store supervisors, the supply of the products does not follow any set guidelines but they just provide what is available in the stores. This system of management leads to the company experiencing some of its products expiring in the store. Dairy products are highly perishable and hence the company should come up with a system that ensures that the stock that is first in the store also leaves first. This system is also called the FIFO system (First in First out). This is a system that will help the company in managing the dairy products to avoid so much loss (SADI, 2006). Almarai Company also should ensure that they have their store supervisors knowledgeable about the system. This will help the company have a good way to manage the stock and avoid the returns to the enterprise. Almarai Company should only produce their products on the projected demand due to the perishable nature of the dairy products. In addition, the company should also avoid buying of raw materials and in this case milk in large quantity that exceeds the demand that they have for their products. This will help reduce loss for the products as well as reduce the storage costs and in the end reduce the expenses to increase the profits (Vignali & Kenyon, 2007). The primary objective of a good inventory system is to minimize the losses and also reduce the capital investment in the inventory. This is achieved by eliminating the excessive stocks of the company. The other objectives include ensuring the availability of the needed items when required. This will help to meet the necessary production uninterrupted as well as to meet the consumer demand. The company also should seek to have a system that will provide a scientific way to plan their inventory (Institute of Internal Auditors & Grinaker, 1970). In addition, the company also should also have a way to include a system that manages the production items, as well as the items for sale. Almarai Company also should consider having a system that helps to tidy up the demand fluctuations through having a safety stock maintained. The system should also help manage the risk of loss from obsolescence and deterioration, keep the necessary records that will contribute to reducing theft and leakage of the inventories. The system should also help to decide the timely requirement and to receive of the orders made. Advantages of Inventory Control A good inventory system of this company should also have a way to improve the company’s profits through the reduction of wastages and especially for Almarai Company to reduce the returns it is experiencing. If Almarai adopts a good system to manage their inventory will have the following advantages to the company. 1. It will improve the liquidity position of Almarai by reducing the tying up of capital that is experienced in excess inventories. 2. It will ensure the smooth production operations for the company through maintaining a reasonable stock of raw materials. 3. It will facilitate a regular and timely method to supply to their customers through an adequate stock of the finished dairy products. 4. It will protect the firm from variations in raw materials delivery and especially the delivery time. 5. It will facilitate production by scheduling and avoiding a shortage of raw materials or duplicating orders. 6. The system will also help minimize loss by damage and obsolescence. 7. A good inventory system will enable Almarai take advantage of the price fluctuations in the market through economic lot buying to get economies of scale when prices are low (American Production and Inventory Control Society & American Production and Inventory Control Society, 1960). It also good for the management to note that, by installing a good management system it does not mean that the problems of the company are over. The management should know that the management system will not reduce nor will it eliminate the business risks. The management should also note that the inventories system is very complex since it performs many functions and hence the management should also view it as shared responsibilities. In most cases, the reduction of inventories leads to the reduction of sales and reduction of the profits if not well managed. This means that the management should be keen when using the systems so that they may not reduce their profit as well (American Production and Inventory Control Society, 1966). In conclusion therefore Almarai should invest in having a good inventory management system that will provide them a chance to manage their raw materials and their finished dairy products. As discussed above, the company experiences major losses in both the expiring products in the stores as well as the returns that the company receives from the customers (United States, 1981). References Vignali, C., & Kenyon, A. J. (2007). The food we eat: A range of perspectives. Bradford, England: Emerald. SADI, M. U. H. A. M. M. A. D. A. S. A. D. (January 01, 2006). CASE STUDY: MARKETING PERSPECTIVE OF ALMARAI DAIRY FOOD COMPANY. International Journal of Management Cases, 9, 1, 42-50. Sadi, M. A. (November 01, 2014). Marketing trends and future challenges: A review of dairy industry in Saudi Arabia. International Journal of Dairy Technology, 67, 4, 459-466. Al-Jaoua, A., Al'Jaam, J., Hammami, H., Ferjani, F., Laban, F., Sammar, N., Essafi, H., ... Elloumi, S. (November 29, 2010). Financial events detection by conceptual news categorization. 1101-1106. Waters, C. D. J. (1992). Inventory control and management. Chichester [England: Wiley. Horn, J. (1970). 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