CHAPTER ONE
INTRODUCTION
1.1. Background to the Study
The problem associated with most manufacturing firm is the ability to be effective and sustain growth over time which is associated with the ability to minimize control cost, facilitate purchasing economies, eliminates duplication in ordering, better utilization of available stock, providing a check against the loss of materials, facilitation of cost accounting activities, being able to carry out effective cost comparison among others (Anichebe & Agu 2013).
Inventories are vital to the successful functioning of manufacturing and retailing organizations. They may consist of raw materials, work-in-progress, spare parts/consumables, and finished goods. It is not necessary that an
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Inventory represents an important decision variable at all stages of product manufacturing, distribution and sales, in addition to being a major portion of total current assets of many organizations. Inventory often represents as much as 40% of total capital of industrial organizations (Moore, Lee & Taylor, 2003). It may represent 33% of company assets and as much as 90% of working capital, (Sawaya & Giauque, 2006).
Since inventory constitutes a major segment of total investment, it is crucial that good inventory management be practiced to ensure organizational growth and profitability. According to Temeng Eshun & Essey, 2010) organizations have ignored the potential savings from proper inventory management, treating inventory as a necessary evil and not as an asset requiring management. As a result, many inventory systems are based on arbitrary rules. Unfortunately, it is not unusual for some organizations to have more funds invested in inventory than necessary and still not be able to meet customer demands because of poor distribution of investment among inventory items (Temeng et al 2010). In addition to this, Inventory is the stock of any item or resource used in an organization. An inventory system is the set of policies and controls that monitors levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be, (Chase &
Determine the types of inventories these companies currently manage and describe their essential inventory characteristics.
Tying up too much capital in products that are not in demand could be a fatal mistake for struggling small businesses. Moreover, Inventory management can mean the difference between success and failure for some companies. According to the New York Times article, Macy’s was able to post a profit last quarter thanks in large part to improvements it made to its inventory management system. In spite of the unstable economic conditions and the huge competition in the market such as J.C Penny and Kohl’s, Macy’s was able to get market share and raise their profit. In this paper, I will be briefly discussing the inventory management history at Macy’s and how the changes in inventory management helped the
According to Investopedia (2014) dictionary, inventory represents one of the most important assets that most business possess, because the turnover of inventory represents one of the primary sources of revenue generation and subsequent earnings for the company’s shareholders/owners. There are several reasons for manufacturers to hold inventories: one is to meet the demand of production and sales operation; the other is to consider the market price. Generally, we would receive a lower price if we buy large stock of goods than a small amount of goods. However, overstocked inventories not only occupy plentiful funds, but also increase the costs including warehouse cost, insurance fee,
Retailers define inventory as intended sellable assets consisting of goods that are available for resale to customers. Manufacturers also maintain three components of inventory. These include “finished goods” which are goods that have been completed and are awaiting sales. Manufacturers may also have “work in process inventory” made up of goods being manufactured but not yet completed. The third category of inventory is “raw materials,” consisting of goods that are to be used in producing products. Overall, inventory should include all costs that are both ordinary and necessary to put the goods in place and in condition for their resale. For many companies, what they have in inventory represents a major
Although inventory plays a major role in the supply chain, there are also some inconveniences. Inventory is very costly and uses space that could be used in a more profitable way.
To be successful in today’s business environment, an organization must be able to perform certain fundamentals accurately and efficiently. One of these elements is having an effective and efficient Inventory System Management (ISM). ISM enables one to have the knowledge of where his or her inventory is at every step of the way. This allows one to better interact with consumer and make sales. Choosing the right ISM can lead and pave the ground work for future business success and profitability.
Merchandising inventory is goods that have been acquired by a distributer, wholesaler, or retailer from suppliers with the intent of selling the goods to third parties. (Accountingtools.com, 2015) When choosing the type of method to use for merchandising inventory it is important for the business to understand what type of services or goods that are being provided. This can offer a better insight to the proper and most cost effective method. When deciding there are four types of inventory cost methods to elect from.
All retailers have a common goal in mind, and that is to make a profit. Companies earn a profit by first connecting customers with products, which can lead to an exchange of product for money. Without the ability to connect customers with products, no money exchange is possible and no profit is earned. It is, therefore, immensely important for retailers to have the right products, in the right quantities, at the right locations, and at the right time. Inventory Management Systems provide companies like L.L.Bean with the necessary information to achieve just that. L.L.Bean’s advanced inventory management system (IMS) connects customers with products, irrespective of the location of the product or the customer (Hoffsess, 2015).
Inventory counts will allow you to better manage stock levels, anticipate demand and prevent loss and theft. When tracking inventory, be sure to include maintenance items, equipment, furniture and any rentals. Because physical inventory counts are monotonous and laborious, consider dividing up the project into different sections or stages. For example, you can count by area or department. This will allow you to perform one part every day and reduce the burden on your employees. Be sure to regularly perform the inventory every quarter and use identical methodology and documentation. After a few years, you will be able to digitize this information into a spreadsheet to analyze past trends and make future
Inventory is the total quantity of materials or goods contained in a factory or store at any given time. The owners of store need to be familiar with or know the exact figure of items on their storage areas and shelves in order to place losses or orders. Factory managers should know how the number of units of their goods that are available for client orders. The word inventory can be used for both the overall sum of goods and the work of summing them. In the case of racket science retailing, the company usually takes a record of its supplies on a regular manner in order to keep away from running out of common items. To some extent, the company takes inventory to make sure that the number of products ordered matches the real number of products or items counted physically. Normally, in cost accounting, averages or shortages after an inventory indicates a problem with theft (mostly referred to as 'shrinkage' in retails) or inaccurate accounting practices. Rocket science retailing also takes a record of stock after every trading
A study of inventory management at SARK CABLES LTD is undertaken inorder to know the inventory performance and position of the company and to know the strength and weakness and to assess the profitability of the company. Inventories constitute most significant part of assets of large majority of the companies in India. Inventory a double edged sword is usually an asset of an organization, if not used properly it will become liability. It is therefore absolutely important to manage inventories efficiently and effectively in order to overcome unnecessary investment.
Inventory management has two very different, but effective methods: Vendor managed inventory, and consignment inventory. A company may choose to utilize either of these two methods to manage inventory. If a company is able to manage inventory, they will be better able to work the company's capital to the fullest extent. The following paper will identify the differences between the two as well as identify what type of company is best suited for each method.
The principal role of inventory management systems is to ensure that stores are adequately stocked. Companies use various methods to track and report inventory. Retail companies are perhaps the best entities to examine when attempting to understand inventory management systems. The type of inventory a company has determines the method they use. Retail companies use the retail inventory method as a base system. Last-in-First-Out (LIFO) and First-in-First-Out (FIFO) are the two systems that appear to be used more
Managing what's in a warehouse or on the shop floor can be extremely complex if you're looking for optimal cost and supply chain management capabilities( Needleman, 2017 ). Inventory estimation and control is directly impacted a company’s profitability.
A common way of decreasing the amount of inventory a business holds on a daily basis is implementing a just-in-time inventory process. A Just-In-Time inventory system means that the business gets the materials for a product, as they are demanded. “The electronic data