reduction in inventories can have a dramatic effect on your
benefits of inventory control
is the key to maintaining proper inventory levels
Detroit (reprinted with permission)
Donald Reimer, CMC
& Ravi Nayar, CMC
maintaining the right inventory levels is a tough challenge. If
not properly managed, your inventory can result in a significant
expense. Looking over your shoulder is the lender who is concerned
about the cost of carrying too much inventory - which can affect
there are management information systems that exist which use microcomputers
and a variety of industry specific software. The cost of carrying
inventory today has become a major expenditure and requires immediate
attention. The benefits of inventory control far outweigh the costs.
Any reduction in inventories, whether it is raw material, work-in-process,
finished goods or supplies, can have a dramatic impact on your bottom
averages suggest that a 20 percent reduction in inventory is achievable
with a computerized inventory control system. For a company with
a yearly sales volume of $1 million, such a reduction would result
in savings of $14,400 per year and would free up $48,000 of new
dollars for reinvestment. For a company with a yearly sales volume
of $10 million, the figures are proportionately higher: $144,000
per year in savings and $480,000 in new dollars for reinvestment.
benefits of inventory control far outweigh the costs."
inventory control system can also help a company with new inventory
management techniques such as Just-in-time (‘JIT’). Such techniques
cut the use of company resources such as warehousing, equipment
and personnel. However, these techniques require error-free environments
and better control over inventory since the buffer zone to compensate
for the errors is less.
do you go about selecting a computerized inventory control system.
such a system should be bought rather than developed in-house. With
the purchase of an already available software package, you can focus
on getting the benefits of the system immediately rather than waiting
until the development and debugging is completed. Also, the documentation
and training materials will generally be available immediately when
a software package is purchased.
a software package is not easy, considering that there are many
choices available in the marketplace today. When choosing a package,
consider: ease of installation and operation, ease of use, vendor
reputation, local troubleshooting and consulting support, quality
and availability of end-user documentation and education programs.
can you expect a computerized inventory control system to do once
it is in use? The package should be capable of certain key functions.
The system should allow for reporting and tracking all items of
inventory within a company. In the case of a manufacturing company,
this includes the raw material, sub-assemblies and other work-in-progress,
finished goods, tools and supplies.
particular, the system should:
an item master file for the company. This file keeps all pertinent
information on each item to be controlled: part number and description,
detailed information such as preferred and actual locations and
shipping weight, reorder point and recommended reorder quantity
and cost information such as standard cost, actual cost and sales
the inventory within the company. Such activity includes the
material issues, receipts, shipments, transfers, returns, rejections,
inspections and scrap. The system should enable the transactions
to be processed online, with immediate updates. The system should
also provide the capability to track inventory levels and activity
for multiple locations within the company.
purchasing. The system should provide reports of items at
reorder points in case of companies not using material requirement
planning ("MRP") systems. The order point calculation
should be based on the prior use of items. Automatic computation
of these numbers greatly helps in inventory control personnel.
adequate online inquiry and management reporting capabilities.
The system should provide online inquiry into the stock status
by different locations, inventory value by different location
and descriptive information for each item. The information should
be obtainable on the screen from different computer terminal locations.
system should be capable of generating numerous operational and
management reports. These might include:
inventory control system can be a big asset to a company, whether
large, medium or small. These systems can help the management in
controlling the inventories of the company to cut significant costs
and have a dramatic impact on the financial bottom line of the company.
a system should be purchased from software package vendors and customized
to the company’s needs, if necessary. There are many packages available
in the software market today. However, care should be exercised
in choosing the package since the customizing and implementation
costs for the company could be very high if the wrong package is
cost of implementing the system goes far beyond the cost of the
software package itself. The effort and time could be as high as
five to 10 times the cost of the package. But the benefits of the
system would still far outweigh the costs for a typical company.