According to the U.S. Small Business Administration, “Inventory refers to stocks of anything necessary to do business” (U.S. Small Business Administration, 2010, pp 1-2). The U.S. Small Business Administration publication describes what constitutes successful inventory management (balancing cost versus benefits of inventory), including 1) Maintaining a wide assortment without spreading the rapidly moving items too thin, 2) Increasing inventory turnover without sacrificing service, 3) Keeping stock low without sacrificing performance ,
4) Obtaining lower prices by making volume purchases,
5) Maintaining an adequate inventory without an excess of obsolete items. Anyone in business must understand the business of inventory. Below is a look at six different inventory systems as well as a comparison of the advantages and disadvantages. Wal-Mart Inventory System
Wal-Mart runs its stores on a perpetual inventory system. This system records the quantity of items sold as items are purchased. The computer system at Wal-Mart constantly keeps up with additions or deductions from inventory and tells management what items are on hand. The organization also conducts counts of employee manual counts of inventory periodically. When an item arrives at the Wal-Mart distribution center it is scanned into the inventory system. When the items are purchased by the consumer, the point-of-sale system reduces the inventory from that purchase. According to Wal-Mart’s Gail Lavielle, a leaner inventory will help clear out store clutter and help Wal-Mart focus on specific brands and products that consumers want (The Associated Press, 2006).
Advantages and Disadvantages of the Wal-Mart Inventory System The advantages of a perpetual inventory system are that inventory is quickly updated in real-time, which gives a constant picture of the inventory status. With this data, inventory counts will be more accurate and allow one to keep up with demand or determine which products are not selling. This method also helps to save money through more accurate supply purchases and helps to spot products not selling. On the other hand, the disadvantages of a perpetual inventory system are that costs and resources associated with the technology required to run this system and to train people on how to use it. Items such as scanners, point-of-sale systems, scanners, computers, software, and employee training must be considered before implementing this type of system. A perpetual inventory system will not account for inventory losses caused by theft. Staff must conduct a manual periodic count, which costs money, and reduces accuracy. Riordan Manufacturing Inventory System
Riordan Manufacturing completed a cost-benefit analysis in 2005 and determined that too many assets were tied up in inventory stock. Rather than start a new fiscal year with a full supply of inventory, Riordan began developing a just-in-time inventory process. The five-year goal is to end a fiscal year with a safety stock of 1000 of each product on hand to meet immediate demand in the first quarter of the next fiscal year. Currently, manual counts are performed quarterly. As the company transitions to a bar code system the plan is to reduce manual counts to an annual spot check. Management will ramp up production as necessary to ensure demands are met on time.
Advantages and Disadvantages of the Riordan Inventory System The advantage of a just-in-time production and inventory system is minimal inventory that needs to be managed, and reduced storage space costs. Just-in-time (JIT) inventory, also called lean-production, requires supplies arrive just as they are needed—a delay in material creates a delay everywhere else in the chain. Riordan’s purpose in implementing JIT with a safety stock option is to gain and maintain a competitive advantage in the marketplace. With consistent high quality product, frequent delivery, short lead time, and...