Chapter 6

Information for Inventory

Management
page212

Instructor: Mehnaz Khan

MANAGEMENT INFORMATION SYSTEM

The MIS controls the flow of information throughout an organization, and

makes sure that everyone has the information they need to work properly.
It collects, checks, organizes, stores, analyses and presents information in the
most appropriate formats to everyone who needs it.

• The systems take a huge variety of formats, and range from casual ones
(often little more than meetings in corridors and coffee lounges) to very
formal ones that give a rigid structure and procedure for making decisions.

• Most organizations go beyond the basic systems, and use a range of

knowledge bases, decision support systems, expert systems, executive
information systems, and other systems and tools to give positive assistance
with decisions.
• You can get an idea of the range of information needed from the following list:

1. Business environment, which gives the overall context for stocks. Inventory managers
need information about the state of competition, changing circumstances, likely shortages
or supply difficulties, state of the economy, government policies and legislation, inflation,
exchange rates, tariffs, duties, taxes and quotas, and a range of other external factors that
might affect stocks.

2. Organizational strategies, which are the internal policies that show what the organization is
doing in the long term and the support needed from inventory management. They include
details of objectives, planned operations and products, priorities, financing arrangements,
trading relationship, and a range of other internal factors that might affect stocks.

3. Performance targets, which identify the factors that are important to the organization –
and consequently to inventory management – and the levels of performance to be achieved.
They describe aims for customer service, productivity, stock turnover, return on inventory
investment, overall investment in stock, improvements, balance between competing
objectives, etc.
4. Plans for operations and production. Stocks are needed to support operations within an
organization, so inventory managers obviously need to know as much as possible about
these planned operations, including material requirements, new products, changes to
existing products, promotions, size of demands, etc

5. Costs. Our independent demand inventory models are based on reliable figures for the
four cost components of unit, reordering, holding and shortage. As well as these, managers
need detailed breakdowns of other relevant costs, such as opportunity costs, financial
charges, transport, storage, packaging, handling, insurance, obsolescence, internal
movement, delays, distribution, etc.

6. Customer information. Inventory managers pass materials to customers (either internal

or external). They must have a clear picture of these customers. This needs a lot of
information about alliances, trading arrangements, identification of existing and new
customers, contact details, salespeople used, locations, products demanded, size of orders,
regular orders, preferred delivery modes, purchases from competitors, sensitivity to prices,
returns, complaints, attitude towards shortages, back-orders, service level and lead times
demanded, stocks held, purchasing system used, attitudes towards shared systems and
7. Costs. Our independent demand inventory models are based on reliable figures for the
four cost components of unit, reordering, holding and shortage. As well as these, managers
need detailed breakdowns of other relevant costs, such as opportunity costs, financial
charges, transport, storage, packaging, handling, insurance, obsolescence, internal
movement, delays, distribution, etc.

8. Customer information. Inventory managers pass materials to customers (either internal or

external). They must have a clear picture of these customers, and this needs a lot of
information about alliances, trading arrangements, identification of existing and new
customers, contact details, salespeople used, locations, products demanded, size of orders,
regular orders, preferred delivery modes, purchases from competitors, sensitivity to prices,
returns, complaints, attitude towards shortages, back-orders, service level and lead times
demanded, stocks held, purchasing system used, attitudes towards shared systems and
integration, trading history, payment method, financial security, credit terms requested, etc.
9. Demand patterns. To have enough stock to meet likely patterns of future demand, we
need forecasts for each period, complete histories of past demand, changing patterns
over time, reasons for changes, amount of variation and uncertainty, factors that affect
demand, special promotions and marketing campaigns, regular orders, advance sales, etc.

10. Supplier information, which gives all relevant information about the supply of
materials, including preferred suppliers, alliances and other trading arrangements,
attitude towards shared systems and integration, locations, products supplied, quality,
purchasing system used, lead times, reliability, trading history, financial security,
alternative suppliers, process and purchase conditions, credit terms offered, attitude
towards returns, payment method, etc
11. Product details, which identify the exact item and include identification codes,
description, design features and specifications, limitations, unit prices, discounts available,
special conditions for storage or supply, quality available, weight and size, packaging,
available suppliers, order restrictions, relative make/buy costs, and alternative products.

12. Warehousing information, which shows where stocks are held, including locations, stock
levels in each location, space available, facilities and conditions, material handling equipment,
security, ownership, restricted access, costs and performance.

13. Transport, including the types of transport available, types of vehicle, special
requirements and facilities, access, speed of delivery, scheduled services and frequency,
reliability, costs, capacities, back-hauls and reverse logistics.

14. Stock information. This gives the details of all current stocks held. These details might
include identification codes, current holdings, locations, inventory policies, reorder levels and
quantities, deliveries due, suppliers, quality, units reserved for known orders, allowed
variation in stock, maximum and minimum levels, age of units, obsolescent and slow moving
items, insurance, special conditions, allocation of stocks to orders, back-orders
15. Orders outstanding, which are all the orders with deliveries expected in the near
future, details of materials in transit (coming from suppliers, going to customers, or
moving between facilities), routes, transport operators, current locations, quantities, due
dates, reliability, special handling required, potential difficulties, back-orders, urgent
deliveries, etc.

An inventory management information system can be seen as collecting information

from different functions in an organization, storing and processing this information,
passing this to inventory managers and returning reports to other functions. These
reports include decisions, orders, costs, stock levels, purchases, summary statistics and
any other information needed about stocks.
Transaction recording

• Inventory management information systems come in many different forms to suit

individual circumstances, but they all have common features.

• They are all based on a centralized store of information that is continuously updated
by new stock transactions.

• Every time a unit is sold or moved it affects the stock holdings, so the system has to
track every detail of stock movement, from orders sent to suppliers through to
payments received for finished products delivered to customers.
• A typical transaction recording system might do the following:

1. maintain accurate records of current stocks, customers, suppliers, etc.;

2. update these records after each order, delivery, withdrawal or other transaction

3. check and validate all data used by the system.

• This data validation and transaction recording stage comes before the main
information processing,.

• When you remember that an inventory of any size has tens of thousands of items and
meet thousands of orders a day, you can see that even this part of the system can be
big and complicated. Thankfully, the procedures are fairly routine, and there are very
reliable systems that give few problems or errors.
• The information collected from transaction recording can be used by the inventory
control system for the following:’
Reasons why actual stock may differ from recorded stock:

• records may not have been updated with recent transactions;

• stock is mislaid (particularly when an item is kept in several locations) and will turn
up later;

• emergency or hurried withdrawals from stock may incur errors or not be recorded;

• deliveries or withdrawals are recorded more than once by mistake;

• cancelled orders or withdrawals are not recorded; ž poor quality and returned
items (either from customers or to suppliers) are not recorded

• stock become obsolete and is discarded;

• stock is stolen, damaged or deteriorates while in store

• HOW TO ENCOURAGE MATCH BETWEEN STOCK RECORD AND ACTUAL STOCK

• the most important is to restrict access to stores.

• Allowing only designated people into a store should make sure that there is no unauthorized
use of the stock,
• all transactions are properly recorded.

• Many organizations feel that stocktaking is an expensive and inconvenient formality, and only do
one check at the end of the financial year.
• Unfortunately, this means that discrepancies can last for a long time without being noticed.
• A more useful approach uses cycle-counting, where stock is checked at regular intervals.
• Typically, a small proportion of items is checked every week, with high usage items checked every
month and less widely used items every three months.

• Some discrepancies are inevitable in stocktaking, but how much is acceptable, and when does an
organization have to do something about the errors? The answer depends entirely on the
situation
• . One common suggestion is that important items should have discrepancies of less than 0.2 per
cent in stock levels, while other items should be within 1 per cent
Information from accounting