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.
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