Inventory Systems Summary
Planning and Forecasting is a vital function of management especially as it is related to inventory management. Planning has four processes associated with it. They are establishing goals, formulating strategies, implementing the plan and evaluating its success. The planning process of inventory will assist the organization choose the correct inventory system resulting in reduced costs and increased efficiency. For any business, having large amounts of inventory could prove to be expensive. In most company’s the management team will forecast sales on a monthly basis in order to keep enough inventories to fill customer orders in a timely fashion but not have an overflow of stock. There are various types of inventory systems. For example, just in time (JIT) is a strategic inventory system implemented to improve the return on investment by reducing in-process inventory and the costs associated. JIT is driven by a series of signals that tell the production processes to make the next part. When implemented correctly, JIT can lead to dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency. Furthermore, JIT is an attitude of continuous progress in which non-value-adding activities are identified and replaced. Additionally, there are other inventory systems such as FIFO and LIFO. FIFO means, first-in-first out. The primary purpose of FIFO inventory management practice in retail stores is to rotate stock so that it remains fresh, new, and in good condition for the consumer. This practice reduces returns and inventory write downs Conversely, LIFO means last in first out.In terms of how a company reports their financials, LIFO and FIFO have different advantages and disadvantages. For instance, with FIFO, as long as a company's good generally appreciate in value (due to inflation,) income statements will show higher revenues, because the company is taking the least expensive quantities to cost of goods sold. In LIFO, on the other hand, with increasing costs, one is always allocating the largest costs to expense, so income statements will look lower for potential investors. However, LIFO still has a purpose (it was invented for tax, reasons). If a company allocates more expense, then it has less income to be taxed, so a company's tax burden is lessened. Furthermore, the company is allocating a more recent and therefore more “current” price of a good (Roviere, 2002-2010). Examples of Inventory Systems
Inventory is basically the total amount of goods and materials held in stock by a factory, store and other business. An inventory system keeps track of the goods and material it has available for businesses. Inventory systems serve several different functions for businesses; one purpose is promoting the sales function by ensuring that a sufficient amount of product is available for customers. Another purpose is shrinkage control, that is monitoring the frequency of loss, theft, or breakage of products received. An additional vital function of inventory control systems is asset valuation; that is establishing the value of the products on the shelf for tax purposes at the end of the tax year. All inventory systems, regardless of technology, require some element of visual inventory management. There are generally three types of inventory systems; manual entry, barcode, and radio frequency identification (RIFD). RFID is a technology that uses remote identification of given objects. RFID systems use tags and readers to obtain certain information about products. The tags are labels with numbers programmed into them, and the tags are then attached to objects to be identified, tracked, or inventoried. The tags are a combination of chips and miniature antennas in the forms of labels. The readers are devices that read the information contained in the tags, remotely. This system operates without the need for a person to actually see the objects, or walk around with a...
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