Developing An Inventory Management System For Operations Management Essay.

Discussion

Describe about the Developing an Inventory Management System for Operations Management.

Designing and developing an inventory management system is a part of the operations management. The system works to give businesses a better competitive edge by solving issues with current inventory management (Need, 2006). In this report, literatures have been reviewed to provide a detailed overview of inventory management. Discussed are the importance and benefit of inventory management, its objectives and best practice. Further, various factors for efficient implementation of an inventory management system in a retail business are listed. The purpose is to fully understand the design and development of a solution for management of current problems and the provision of best services. The report also discusses some of the challenges in inventory management systems in the provision of business solutions.

A case study on purchasing and inventory at Brisbane Outdoor Power Centre is reviewed as part of literature studies. A detailed investigation was conducted to establish existing challenges in the current inventory management system. With reference to the reviewed literatures, a recommendation is proposed to help resolve arising concerns from the current inventory management system.

Basically, an inventory is a detailed stocks list for the items being traded.  It comprises of input materials, unfinished products and output goods. Contemporary businesses need to have appropriately maintained stock levels in order to meet market demands in real time. In operations management, inventory is part and parcel of purchasing management.

The past decade, has experienced a rise in the supply chain management concept, receiving considerable attention in the operation of businesses. This attention has been geared towards the integration of supply chain management into one package rather than as a package of smaller distinct processes (Stock, 1998). According to Tersine (1994) supply-chain management is the strategic and systematic coordination of conventional business operations.  Its primary objective is typically to improve a business’ performance in the long term by improving the whole supply chain (Salvo, Mackenzie, Bennett, Relyea and Thomas, 2002).

On the other hand, inventory management encompasses a system of processes to maintain an appropriate level of stock in a business (Caswell, Bass, Caswell and David, 1987). These processes include the identification of the necessary inventory needs, instituting a replenishment process, monitoring stock movement, reconciling balances and reporting the status of inventory. Primarily, inventory management is the process of efficiently controlling stocks with the aim of avoiding excess or fewer inventories. Therefore, a reliable inventory management should minimise associate costs in inventory (Stevenson and Sum, 2002).

Benefits and Objectives of Inventory Management

Zara and Singhal (2006) report that there are three main objectives in the management of inventory:

Reduction of inventory cost or investment. An important goal for any business. It is vital for businesses to maintain a balance between inventory and the profits gained in order to be successful.

Provision of improved consumer satisfaction.

Increasing overall productivity of business by improving sales and profits realized from effective inventory management.

Drabek (2012) also highlights that the benefits of inventory management are numerous, including:

Helping in the reduction of the time needed to respond to the changing market demands of particular goods and in controlling any stocks in excess.

Providing a means through which businesses can effectively control or manage their inventory

Facilitating constant analysis of business processes like purchasing and sales for the purpose of making adequate inventory decisions.

Provision of total insight on transaction of stocks.

Provision of practical understanding of inventory which has the potential to influence sales and customer service in a positive manner.

Currently there exist two commonly accepted approaches to inventory management. These include the materials required planning approach (MRP) and the just-in-time approach (JIT). MRP is basically a management system converting sales into loads through time and sub-units. This system involves scheduling orders more closely to reduce inventory and shorten the time taken in making deliveries while making deliveries more predictable (Fitzsimmons and Fitzsimmons, 2013). MPR periodically reviews orders thereby allowing the ordering of currently needed items. This is efficient in keeping inventory levels low.

On the other hand, the JIT approach works to ensure that businesses only keep the correct inventory, at the correct time and in the correct quality (Kannan, Govindan, and Rajendran, 2015). This approach is adopted by many organizations, integrating inventory management to achieve advanced competitive advantage. JIT does not optimize inventories but rather eliminates them.  

In today’s business, inventory management is an important part of everyday business operations. It functions to ensure quality control in a world where businesses are centered on consumer satisfaction. Therefore, inadequate inventory management may lead to consumer dissatisfaction in the event that there is a stock-out for highly demanded goods. To avoid such incidents, businesses willingly invest huge amounts of revenue to acquire effective and adequate inventory management systems.

According to Poonnawat and Lehmann (2015), a good management system should have a warning system that appropriately alerts the retailer to reorder before he or she is out of stock. Concomitantly, it should automatically track moving inventory. An efficient system minimizes risks of errors. For instance, a business ordering large quantities of goods, and nearly ten thousand items get lost. Though manual system is common in many businesses it may result in errors; however, an automated system can help in avoid this. Such errors are more common in retail stores.  Choubey and Agrawal (2016) suggest that retail stores can employ inventory management system in tracking theft of merchandise while providing valuable information concerning the activities of the store.

Implementation of Effective Inventory Management Systems

Concomitantly, the design of an inventory management system should support and reflect the strategic approach of a business organization and be able to adapt to global market changes such as the use of new technologies. It provides information that is relevant for the efficient monitoring of inventory movements, while coordinating and integrating internal processes like billing or accounting, human resource management and customer service. Berman and Evans (2013) report that in order for businesses to ensure continuity between functions, management systems must integrate the following processes:

Sales Forecast: demands that the system provides appropriate information for effective coordination of operations of the business and the management people and equipment. It should facilitate accurate and real time management decision making.

Operations and Sales planning: inventory management should handle or control market demand fluctuations in real time.

Business’ Strategic goals: strategy alignment is primary factor in business and a necessity for success. Therefore, a well-designed inventory management should be aligned with strategic goals of a business and current market demands.

Input requirement planning: inventory management systems should strike a balance between supply and demand within minimal costs, work load and inventory level in order to achieve consumer satisfaction.

However, these processes vary from between businesses depending on a business’ processes and market demands.

Brisbane Outdoor Power Centre is a retail store business providing a variety of products designed to meet local demand.  This range of products include different types of  “ride-on mowers” as well as “other garden equipment” that are suited to larger properties like hobby farms and residential acreages. Brisbane Outdoor Power Centre conducts its businesses from three retail stores located across Queensland city: Brisbane. Based on the organizations experience as an efficient retailer, though running as separate entities, the management is aware of the necessity of quality services in their distribution system and therefore provided this to ensure consumer satisfaction. However, as a result of the rapid growth, the company was faced by challenges in their inventory system.

Brisbane Outdoor Power Centre had a business goal to be the best retail store within its industry. To effectively achieve this, the company had to develop a means for the minimization of inventory cost:

One area that seemed to be in need of some attention was the whole process of purchasing and inventory management. As a retail establishment, Brisbane Outdoor required a heavy investment in stock, and an effective means of managing that investment. Saxon’s laissez-faire approach to the business had resulted in some rather odd purchasing and inventory management practices. Each store operated autonomously, and whilst various stock items were transported between stores when shortages occurred, there was no integrated approach. Even major product brands differed from store to store. Each of the three inventory managers did their own sourcing and purchasing, and had their own way of managing inventory. This situation had led to three completely different and unconnected purchasing and inventory management systems. Source: “Case study: Purchasing and Inventory at Brisbane Outdoor Power Centre (n.d.)”

Case Study Analysis

With a new management in position, an effective or sustainable approach was inevitable.  It was suggested that a good procurement and inventory management process would improve financial and operational gains. A good purchasing and inventory management system should be any adequate strategy that achieves this. Therefore, this paper reports the development of an appropriate inventory and supply-chain management system for Brisbane Outdoor Power Centre stores.

The current inventory system at Brisbane Outdoor Power Centre is based on the laissez-faire approach whereby each store has its own separate purchasing and inventory system.  However, since the businesses are integrated into one company, their purchasing and inventory systems are not integrated. Still, “various stock items were transported between stores when shortages occurred.” With “three completely different and unconnected purchasing and inventory management systems,” the company faces a huge problem that affects its profitability.  However, this led to financial and profit problems.

Advantages of this system include independence in inventory management suggest less time in completion of transaction. On the other hand the system is disadvantageous as the stores have to share resources which lead to a mix-up of products within a given retail store. Other disadvantages include loss of sales and stock-outs; inaccurate on -shelves quantities; and unsatisfactory ROI from inventory (Kontrec et al., 2015).

Studies indicate that coming up with an adequate inventory management strategy isn’t a ride in the park. This can be attributed to several uncertainty types that relate to inventory strategies and depend on the nature of business. Additionally, the organization should implement both forecasting methods and a policy on inventory management. This report suggests an inventory management system that should allow Brisbane Outdoor Power Centre to have adequate control over its purchasing and inventory processes. The operations management concepts to drive the proposed system include:  central warehouse, performance management and service, supply chain management and enterprise resource planning, bulk purchasing, avoid excess inventory, increasing ROI, and having ample on-shelves inventory.

The table below shows the implementation plan for the proposed solution.

Table1: Implementation plan

Conclusion

In conclusion, the study found that most businesses struggle to better their purchasing and inventory operations without increasing the cost of inventory. However, the main concept is to automate and integrate all the processes involved in order to achieve a single cohesive inventory management system. If organizations can investigate into their business purchasing and inventory management systems, then it would be possible to achieve their business strategic objectives and increase the return on investment (ROI) (Schroeder, Goldstein, and Rungtusanatham, 2013). This report purposefully provides a reliable solution to Brisbane Outdoor Power Centre stores for the company to gain a competitive edge and realize the company goals through reduced inventory cost and increased sales. An adequate inventory management strategy provides a business with appropriate control of its inventory and reduces the total cost of operation leading to consumer satisfaction and gives a competitive advantage. Successful inventory management involves balancing the cost of and profit in keeping inventory. Benefits of inventory  management include: getting cheaper prices through bulk purchasing of retail products; avoiding excess inventory by keeping stocks low- just enough to meet demand; having a broad range of products stock, increasing ROI; and maintaining ample on-shelves inventory in order to provide reliable consumer services (Lutz, Birou, and Kannan,2014).

References

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Caswell, R.L. and Bass, C.D., Caswell Robert L and Bass C David, 1987. Inventory management system using transponders associated with specific products. U.S. Patent 4,636,950.

Choubey, N.S. and Agrawal, M., 2016. Automation in Textile Industry. methods, 2(1).

Drabek, T.E., 2012. Human system responses to disaster: An inventory of sociological findings. Springer Science & Business Media.

Fitzsimmons, J. and Fitzsimmons, M., 2013. Service management: Operations, strategy, information technology. McGraw-Hill Higher Education.

Kannan, D., Govindan, K. and Rajendran, S., 2015. Fuzzy Axiomatic Design approach based green supplier selection: a case study from Singapore. Journal of Cleaner Production, 96, pp.194-208.

Kontrec, N.Z., Milovanović, G.V., Panić, S.R. and Milošević, H., 2015. A reliability-based approach to nonrepairable spare part forecasting in aircraft maintenance system. Mathematical Problems in Engineering, 2015.

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Need, W.C.D.H.P., 2006. Human resource management: Gaining a competitive advantage.

Poonnawat, W. and Lehmann, P., 2015. A Framework for using Business Intelligence for Learning Decision Making with Business Simulation Games.

Salvo, J.J., Mackenzie, P.D., Bennett, J.S., Relyea, H.A. and Thomas, A.M.I., 2002. Inventory management system and method. U.S. Patent 6,341,271.

Schroeder, R.G., Goldstein, S.M. and Rungtusanatham, M.J., 2013. Operations management in the supply chain: Decisions and cases.

Stevenson, W.J. and Sum, C.C., 2002. Operations management (Vol. 8). New York, NY: McGraw-Hill/Irwin.

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Zara, A.M. and Singhal, S., Hewlett-Packard Development Company, LP, 2006. Method to map an inventory management system to a configuration management system. U.S. Patent 7,013,462.