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'Inventory - Management' With You
'Inventory - Management' With You
SOX
- The Sarbanes-Oxley Act of 2002, often simply called SOX or Sarbox, is U.S. law meant to
protect investors from fraudulent accounting activities by corporations.
There are so many great advantages that can result from managing inventory properly. Here
are some additional benefits to keep in mind:
2. Cycle Counting
Utilizing a cycle counting system to replace the meticulous and labor-intensive physical stock
count will improve inventory accuracy and decrease labor costs. Cycle counting is a process
that counts important items more frequently than the less important ones. This method provides
a system for verifying and eliminating the place where errors originate in the supply chain.
3. ABC Analysis
Use ABC analysis to arrange items from most to least important. Organizing stock in this
fashion will simplify order fulfillment and save space in the warehouse.
Ordering, holding, carrying, shortage and spoilage costs make up some of the main categories
of inventory-related costs. These groupings broadly separate the many different inventory costs
that exist, and below we will identify and describe some examples of the different types of cost
in each category. The other requires a certain amount of calculation to understand the impact it
has on your Gross Profit. Let's look at types of costs :
1. Ordering Costs
Ordering costs include payroll taxes, benefits and the wages of the procurement department,
labor costs etc. These costs are typically included in an overhead cost pool and allocated to the
number of units produced in each period.
• Transportation costs
• Cost of finding suppliers and expediting orders
• Receiving costs
• Clerical costs of preparing purchase orders
• Cost of electronic data interchange
2. Holding Costs
This is simply the amount of rent a business pays for the storage area where they hold the
inventory. This can be either the direct rent the company pays for all the warehouses put
together or a percentage of the total rent of the office area utilized for storing inventory.
• Inventory services costs
• Inventory risk costs
• Opportunity cost - money invested in inventory
• Storage space costs
• Inventory financing costs
3. Costs
Shortage costs, also known as stock-out costs, occur when businesses become out of stock for
various reasons. Some of the reasons might be as below :
• Emergency shipments costs
• Disrupted production costs
• Customer loyalty and reputation
4. Costs
Perishable inventory stock can rot or spoil if not sold in time, so controlling inventory to prevent
spoilage is essential. Products that expire are a concern for many industries. Industries such as
the food and beverage, pharmaceutical, healthcare and cosmetic industries, are affected by the
expiration and use-by dates of their products.
Inventory Models
• is a mathematical model that helps business in determining the optimum level of
inventories that should be maintained in a production process, managing frequency of
ordering, deciding on quantity of goods or raw materials to be stored, tracking flow of
supply of raw materials and goods to provide uninterrupted service to customers without
any delay in delivery.
Plan: Planning processes include determining resources, requirements, and the chain of
communication for a process to ensure it aligns with business goals. This includes developing
best practices for supply chain efficiency while considering compliance, transportation, assets,
inventory, and other required elements of SCM.
Source: Source processes involve obtaining goods and services to meet planned or actual
market demand. This includes purchasing, receipt, assay, and the supply of incoming material
and supplier agreements.
Make: This includes processes that take finished products and make them market-ready to
meet planned or actual demand. It defines when orders need to be made to order, made to
stock, or engineered to order and includes production management and bill of materials, as well
as all necessary equipment and facilities.
Deliver: Any processes involved in delivering finished products and services to meet either
planned or actual demand fall under this heading, including order, transportation, and
distribution management.
Return: Return processes are involved with returning or receiving returned products, either from
customers or suppliers. This includes post-delivery customer support processes.
Enable: This includes processes associated with SCM such as business rules, facilities
performance, data resources, contracts, compliance, and risk management.
The three levels of SCOR MODELS
Level 1: Defining scope, including geographies, segments, and context. At this level, the focus
is on the six main process configurations: plan, source, make, deliver, return, and enable.
Level 2: Configuration of the supply chain, including geographies, segments, and products. At
Level 2, metrics are high level and evaluated across multiple SCOR processes. This level
includes subtype categories that fall under the “parent” categories found in Level 1.
Level 3: Process element details, identifying key business activities within the chain. At this
level, you can associate any Level 2 process or subcategory with a Level 3 process.
• Inventory
Responsiveness can be had by stocking high levels of inventory for a wide range of
products. Additional responsiveness can be gained by stocking products at many locations to
have the inventory close to customers and available to them immediately.
• Location
A location decision that emphasizes responsiveness would be one where a company
establishes many locations that are close to its customer base. For example, fast-food chains
use location to be very responsive to their customers by opening lots of stores in high volume
markets.
• Transportation
Responsiveness can be achieved by a transportation mode that is fast and flexible such as
trucks and airplanes. Many companies that sell products through catalogs or on the Internet
can provide high levels of responsiveness by using transportation to deliver their products often
within 48 hours or less.
• Information
Information, much like money, is a very useful commodity because it can be applied directly to
enhance the performance of the other four supply chain drivers. High levels of responsiveness
can be achieved when companies collect and share accurate and timely data generated by the
operations of the other four drivers.
• Producers
Producers (manufacturers or service providers) are organizations that make products or
services. This includes companies that are producers of raw materials and companies that are
producers of finished goods.
• Distributors
Distributors (or wholesalers) are companies that take inventory in bulk from producers and
deliver a bundle of related product lines to customers. Distributors are also known as
wholesalers. They typically sell to other businesses and they sell products in larger quantities
than an individual consumer would normally buy.
• Retailers
Retailers stock inventory and sell in smaller quantities to customers in the general public.
Discount stores attract customers using low price and wide product selection. Upscale stores
offer a unique line of products and high levels of service. Retailers offer products and services
to meet the demand of individual customers who buy in smaller quantities.
• Customers
Customers (or consumers) are individuals or organizations that purchase and use a product or
service. Customers depend on producers, distributors, and retailers to meet their needs for
products and services.
References:
investopedia inventory-management.asp
cio.com/what-is-scor-a-model-for-improving-supply-chain-management.html
accountingtools/what-is-included-in-inventory-cost.html