Saturday, March 2, 2013

Importance of Inventory management

Importance of Inventory management
Inventory is a term used to describe the total goods or materials that have been put to use by a firm in order to carry out production so as to effectively carry out its sales function. These description can also be used to cover those items that have been stored to be used as back up incase of an emergency in order to make the production function possible(Muller,2011).In the business perspective, there are three main types of inventory. These include raw materials which are the items that have been bought by the firm in order to be used in the production of other goods and services. Secondly we have the work in progress which consists of the goods that have already been manufactured but are not yet finished. Finally, there are the finished goods which mainly consist of the manufactured goods but not yet sold but are ready for use. In regards of the subject topic an analysis of the Toyota Company will be conducted in terms of customer service, costs and profitability and in creation of efficiency.
Inventory management on the other hand is the aspect of managing the current assets through maintaining a balance between the optimum investment levels and the desired system of control through monitoring them so as to ensure that the total costs incurred in keeping inventory are kept as minimal as possible. Consequently customers may demand for a car or spare parts when they are not readily available or when its production is still ongoing (Muller, 2011).In the case of inventory management, such trends especially of the products that seem to have sky rocketing demand are kept in track so that they are produced in bulk and stored for sell when the need arises. In such cases therefore, issues associated with stock outs are completely eliminated. Through this function, a company is able to effectively carry out the record of sales in a given period of time and therefore be in a better forecasting position. This way, the sales made in relation to the customers demand are entered in a real time format and reordering is done once the inventory levels have reached the predetermined levels, commonly known as the re order level. This type of system is known as the electronic data interchange. This way, incase a company has to order for production, they will be effectively positioned to order just for what they need and not more or less.
In the case of deterring the market rends in regards to the producers that are better sellers than others, this type of function is extremely important. Through keeping track of their inventories especially of the different products that they deal with, it is possible for the management to be able to distinguish which products are highly demanded from the ones that are not highly demanded. Therefore, this can act as a future reference in case of market research. The inventory levels of the different goods can simply be used as facts. Additionally with the realization of the fast moving goods which are simultaneously in demand. It is easy for the company to maximize profits through increased production of the commodity in a bid to increase the profit margins (Muller, 2011).
Through proper inventory management, it is easy for the Toyota Company to carry out an assessment of price for the various inventories to which they hold. For instance it is possible to negotiate for a better price for goods that are not fast moving when carrying out purchase from the suppliers. The ability to do so is only made possible when proper and clear inventory records are maintained. Through purchasing the required inventories in bulk at a go from a single supplier, the firm will be in a better position to get better discounts especially when it comes to the price. Alternatively, since the records are properly managed, it is easy to determine the cheapest supplier from a bigger pool of suppliers. This is especially important for the management since the records will be self speaking and thus eliminated the cost of market research in the case that a new person would be integrated to carry out the function (Muller,2011).
In a business the management of inventory is very important especially since it helps to create a balance between production and profitability. In this aspect when the levels of inventory are kept to the optimum, excessive costs are eliminated in the process. When the inventories maintained are at a level more than the optimum level, then it causes more funds to be diverted in the area of trying to keep sure that the goods are safe, insured and also increased costs are incurred in order to play for the space. However, when these levels are maintained at an optimum, profitability is achieved since what remains/is held is just enough for the costs to cover compared to the production costs that were also incurred.
The firm is also able to maximize on the levels of profitability by maintaining a trade off between carrying and ordering costs which help to reduce the final cost of inventory. When the desired levels of inventory are maintained say, raw materials to be used in the production process, the easy flow of the production process is perpetrated .This I in the sense that through the easy availability of the materials by the company when they are needed, processes are able to be conducted effectively and efficiently therefore no delays in production or delivery will incurred (Muller,2011). In this case also, when the raw materials become scarce, so long as there is proper inventory management, the firm is able to counter the problem by revisiting what they have in stock.
Through the proper management of inventory, it is becoming increasingly possible to maintain a balance check in relation to losses, damages incurred and cases of misuse. In this regard therefore, a firm is able to ascertain the correct level of inventory to maintain in regards to the raw materials, work in progress and finished goods so as to ensure that costs related to losses, damage and misuse are thoroughly reduced(Muller,2011).
With the proper maintenance of inventory records it is possible for the management to carry out stock tacking since the computerized system ms in place will make it easier for the management to do so, especially with the advantage that they are constantly and periodically updated. This way, it is easier to do a report on the existing inventories and also to do a physical count. It is therefore very apparent that in order to improve on efficiecny, it is very important that inventory is properly managed (Muller, 2011).

Reference list
Muller M, (2011), Essentials of Inventory management, Toronto, Amacon Div American Mgmt Association.