Enterprise Inventory Management System

Inventory management is an important part of the policy for managing current assets in an enterprise. The main goal is to ensure the continuity of the processes of production and sales of products and at the same time minimize the total costs that go to service stocks. And automation affected this. The enterprise inventory management system helps us.

general information

Stocks include not only materials and raw materials that are necessary for the production process, but also non-finished products and goods that can be sold. It is important to control their volume. Safety stocks should always be, because no one has yet canceled seasonal surges in consumer demand and supply disruptions. And all this can negatively affect the financial result of the activity. Of course, it should be noted that this can also be attributed to reserves, but on the other hand, they provide stability and liquidity of the enterprise. If there is a shortage, production will stop, sales volumes will drop, and a situation may arise that you have to buy a batch of raw materials or materials at an inflated price. As a result, the company will receive less profit. Also, due to the fact that stocks are liquid assets, their reduction will lead to a deterioration in the current regulatory condition of the enterprise. But here it is necessary to adhere to the golden mean. So, an excess of stocks can lead to an increase in the cost of their storage, you have to overpay the property tax. You can also miss out on potential income due to the fact that financial resources will be frozen in raw materials. In addition, it should not be overlooked that they are subject to moral aging and physical damage.

The approaches

Speaking about inventory management, it should be noted that the manager is faced with a choice of three activity plans regarding the formation of stocks. They differ in different levels of profitability and risks:

1. Conservative approach. It focuses not only on the satisfaction of all existing needs for raw materials, materials and semi-finished products. It also provides for the creation of large reserves in case of supply interruptions, deterioration of the conditions in which products are manufactured, delays arise related to collection of receivables, and customer demand is activated. Using this approach negatively affects the level of profitability and positively - the possible risk.
2. A moderate approach. Provides for the creation of reserves for the most typical failures that may arise during the operational activities of the enterprise. Calculations in this case are based on data from previous years. In this case, an average level of profitability and risks is provided.
3. Aggressive approach. In this case, a minimum level of reserves is ensured (although they may be completely absent). If during the implementation of the operational process there is no failure, the company will receive the best result of efficiency. But when problems arise, the company suffers significant financial losses. Thus, you can get the most profit, but there is also a significant risk of losses.

Management Model: Factors

All that came before this was theoretical training. Now we will consider the development of an inventory management system for the enterprise. To do this, we need to consider a number of factors:

1. The conditions under which stocks are purchased (supply volumes, frequency of orders, benefits and discounts).
2. Features of the sale of finished products (state of demand, reliability and development of the dealer network, change in sales).
3. The characteristic nuances of the production process (features of the technology of creation, the duration of preparation and direct provision of products).
4. Costs that arise during storage of stocks (freezing of funds, possible spoilage, storage costs).

The inventory management system at the enterprise can be built on several specific methods. Each of them has its own specific features.

Wilson Model

It is used to ensure that inventory management in the logistics system is optimized to the maximum. It can be used to answer such questions: what stocks should be; how much materials and raw materials are needed per unit of time; optimal supply size. In addition to them, other provisions that need to be addressed are considered. According to the Wilson model, it is possible by mathematical means to make sure that the company is interested in ordering raw materials, materials and goods in large quantities. In this case, expenses for transportation costs, clearance and the like will be minimized. And this will directly affect the profitability of the enterprise. It also allows you to select the minimum allowable standard level of stocks that will avoid the high operating costs that go to the storage of raw materials, materials and semi-finished products. What are the parameters of the inventory management system in this case? To make full use of the model, you need to know:

1. That it can only be applied to one type of product. Moreover, its amount should be continuously measured.
2. The level of demand for a particular product that is constant over time.
3. Production is carried out in separate batches.
4. Orders come in a separate delivery, which entails additional costs.
5. Inventory costs occur continuously.
6. Delivery and costs for orders are constant (or you need to display the average). And in this case, transport, operational and other expenses are implied.
7. Cases with additional deliveries of goods and discounts for a large volume of orders are not considered.

What is used in practice?

What are the main inventory management systems used? What are their features? Let's look at an example. And the ABC inventory control system will act as the object under study. It is based on volume-value analysis, which divides all types of stocks into certain groups depending on the values ​​of sales and profit. In many cases, it may turn out that 70-80% of all sales fall to 10-20% of the goods. This is the Pareto principle in action. In such cases, the inventory management system offers to focus on the most important products and goods, as well as to effectively manage them so as not to spend extra money on less important areas. Within the framework of the system, cost, volume and frequency of expenditure, consequences of a shortage of certain raw materials and the like are of great importance. The division is carried out into different categories. Let us consider them.

Classification of ABC System Categories

There are three of them:

1. Category A. This includes the most expensive types of stocks that have a long cycle of use. They require constant monitoring, since in case of their shortage there will be serious financial consequences. To determine when they should be optimally delivered, the Wilson model described above is used. Specific inventory items are usually available in very limited quantities and require weekly monitoring.
2. Category B. This includes inventory items in the issue of ensuring the continuity of the operational process and the formation of the final financial result. As a rule, stocks from this group are controlled only 1 time per month.
3. Category C. ABC inventory management system here includes all inventory items with low cost and which do not play a significant role in the formation of the final financial result. The volume of purchases in this case will be quite large. The control of stock movements is usually carried out no more than once a quarter.

Stock Valuation

In practice, the following methods can be used for this purpose:

1. LIFO. In this case, the influence of inflation is smoothed when profit is formed. This method is suitable if you need to have an objective assessment of the result. The positive side is that it allows you to reduce the amount of property tax.
2. FIFO It has a positive effect on liquidity, reduces costs and increases profit.

To summarize

What is an inventory management system? This is a full-fledged set of measures aimed at creating and replenishing stocks, as well as organizing continuous monitoring and operational planning of deliveries. Feedback plays a big role here, or rather how it is implemented. The best result is when representatives of the managerial level can quickly receive all the necessary data, make decisions and implement them. Automation tools are widely used for this. To explain the device, you can work with a three-level model.

Implementation

At the first level, information about the material stock of the inventory management system is formed thanks to warehouse programs and databases. Thanks to them, you can get all the information about the movement of raw materials, materials and semi-finished products, as well as information about loading or shipment of something. The second level of the system is formed from different models of inventory management. They use all the necessary mathematical apparatus, which allows you to evaluate the current state of stocks and develop recommendations for effective management. At the third level, the financial management model is used, as well as the restrictions implemented in the program form, which allow you to control the financial condition of stocks. In this case, the economic efficiency of decisions is evaluated, sources for the purchase of raw materials and materials are determined. In addition, this model deals with the overall financial strategy of inventory management. The presence of software implementation and automation tools can significantly increase the level of efficiency and ultimately save on the staff of economic workers.

Enhancements

The question arises actively: how can we improve the inventory management system? First you need to make sure that the right information is available at any time. Cloud technology can be invaluable in this. They will allow you to get data from an arbitrary point on the globe - there would only be the Internet. In addition, the most advanced inventory management systems have algorithms for calculating the waste of raw materials. Therefore, they can provide high-quality forecasts and recommendations when it is necessary to replenish warehouses. In this case, the role of an individual is reduced only to placing orders and to monitoring the normal operation of the system.

We create ACS

Suppose an automated control system is being created. In this case, the following factors will be of considerable importance for the algorithm:

1. Production capacity.
2. The necessary size of stocks for the normal functioning of the enterprise.
3. The volume of production that is produced for certain periods of time (such are day, week, month). In some cases, a year may even be taken as a basis.
4. Stock level at the time the system was put into operation.
5. Frequency of delivery.

Mrp

This is also an inventory management system. We will consider it as an alternative to the previously mentioned ABC. There are two configurations: MRP-1 and MRP-2. The first processes and adjusts information about the arrival, movement and consumption of stocks. Replenishment and control strategies for each position are also provided. To solve management tasks, there is a special order file that contains all the information. MRP-2 compares favorably with a wider range of functions. It includes production and financial planning, as well as logistics operations. Analysis of the inventory management system allows you to know where, what and how much is.

Conclusion

An inventory management system is necessary for every enterprise that plans to operate successfully for a long time. After all, it allows you to carry out the function of control and replenishment of reserves. A significant role as a structural element is played by automation. We can safely say that they will gradually improve, and in the future we will be able to see this structural part of the enterprise as an autonomous system that needs only to be configured. She will be able to carry out activities on her own.