Inventory Management : Abc and Vmi
Part A: Inventory Management
Introduction:
Inventory management has always been a bone of contention for production, finance and marketing departments, as each has different goals – while production likes to secure high level of raw material, consumables and spares for uninterrupted operations, finance likes to optimize cost by minimizing stock levels and marketing like to have enough finished stock variety to serve the customers on demand. All this involves cost; hence to maintain a right balance becomes a challenge.
Identifying the right kind of inventory management system for can be a difficult and complex task. Since the investment is large and remains fixed over a considerable length of time, the correct system choice is critical to both a firm 's short and long-term profitability (D. Dennisa et al., 2006).
There are various methods available to ensure a right balance. The intention of the paper is to briefly discuss them with greater focus on vendor managed inventory.
Inventory Management Methods:
Inventory management is basically about, inventory control, management and planning. There are several techniques available like Bar code, RFID for tracking, EOQ for ordering, ABC for controlling, VMI, MRP, JIT for replenishment.
ABC Analysis:
“Implementing controls for large inventory systems becomes rather cumbersome because each item requires managements of order cycle and quantity. The inventory control problem is greatly simplified as only a few groups rather than many items will have to be controlled. This method is the ABC analysis.” (Odanakaa , 1987)
Under ABC method all items are classified based on their criticality. This analysis is based on “Pareto” principal generally known as 80/20 rule. It is useful in proactively managing inventory that is critical and high value in nature.
Under A-B-C method of inventory classification, units are classified in to three categories based on their annual dollar value weightage in total
Introduction:
Inventory management has always been a bone of contention for production, finance and marketing departments, as each has different goals – while production likes to secure high level of raw material, consumables and spares for uninterrupted operations, finance likes to optimize cost by minimizing stock levels and marketing like to have enough finished stock variety to serve the customers on demand. All this involves cost; hence to maintain a right balance becomes a challenge.
Identifying the right kind of inventory management system for can be a difficult and complex task. Since the investment is large and remains fixed over a considerable length of time, the correct system choice is critical to both a firm 's short and long-term profitability (D. Dennisa et al., 2006).
There are various methods available to ensure a right balance. The intention of the paper is to briefly discuss them with greater focus on vendor managed inventory.
Inventory Management Methods:
Inventory management is basically about, inventory control, management and planning. There are several techniques available like Bar code, RFID for tracking, EOQ for ordering, ABC for controlling, VMI, MRP, JIT for replenishment.
ABC Analysis:
“Implementing controls for large inventory systems becomes rather cumbersome because each item requires managements of order cycle and quantity. The inventory control problem is greatly simplified as only a few groups rather than many items will have to be controlled. This method is the ABC analysis.” (Odanakaa , 1987)
Under ABC method all items are classified based on their criticality. This analysis is based on “Pareto” principal generally known as 80/20 rule. It is useful in proactively managing inventory that is critical and high value in nature.
Under A-B-C method of inventory classification, units are classified in to three categories based on their annual dollar value weightage in total
References: 1. T. Odanakaa and T. Tanakaa, On ABC analysis of multi-item inventory problem, 1987 2. Max Muller, ,Essential of Inventory Management, 2003 P 3. R. Vergin, K Barr, Building competitiveness in grocery supply through continuous replenishment planning – insights from field, 1999 4. Y Dong, K Xu, M Dresner, Environmental determinants of VMI adoption : An exploratory analysis, 2005) 8. Y Dong and K Xu, A supply Chain model of vendor Managed inventory, 2001 9. C Lee and Wai Chu, Who should control inventory in a supply chain?, 2002 10. Kazim Sari, Exploring the benefits of vendor managed inventory, 2007 11. Horst Tempelmeier, Inventory management in supply networks: problems, models, solutions, 2006 12. Daina R. Dennisa and Jack R. Meredith, An analysis of process industry production and inventory management systems, Nov 2006, Vol 18, Issue 6 13. Y Yao, P Evers and M Dresner, Supply Chain integration in vendor – managed inventory, 2005) 14. B. Mishra, S. Raghunathan, Retailer- vs. Vendor-Managed Inventory and Brand Competition, 2004