Free «Literature Review: The Inventory Control» Essay Sample
The inventory control is important for any firm. It allows controlling inventory properly and making production more efficient. The concept of safety stock is related to it. The following literature review will study these concepts in detail. Moreover, it will also focus on several companies that became globally successful due to many factors, including their inventory control. Those corporations are Best Buy, Walmart and Nike.
The efficient system of inventory control is a key to the company’s success, including its ability to spread, open new locations and enter foreign markets. Many large firms became successful due to their well-developed inventory management. Nevertheless, small businesses need good inventory control, too. According to Crosby (n.d.), modern inventory control system has many purposes and functions that are important for any enterprise. The main objective of inventory management is to keep enough inventory to sell it to customers and satisfy their needs, and at the same time, to maintain stock as low as possible because it requires additional costs to keep it. According to Kharad (2015), inventory management includes managing different types of inventory. Typically, they comprise raw materials, work in progress, consumables, finished goods and spares. The inventory management has several important objectives. They include smoothing production process, maintaining optimum inventory to maximize the profitability of the firm, meeting and tracking seasonal demand, avoiding unexpected increase of prices in future, ensuring the particular level of inventories, planning where and when to buy inventory, and avoiding overstock and understock (Kharad, 2015, p.1518).
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Modern inventory management systems developed in 1990s. They enable the company to keep and track its inventory, communicate with customers and vendors, and change and adapt its inventory quickly to changing demand or seasonal demand. Modern inventory management systems should also be flexible and provide some time for making decisions. Efficient inventory turn that minimizes costs and satisfies customers is their essential element. Inventory management systems are developing quickly, and they become more automated. One of the most modern systems is radio frequency identification, or RFID. It requires using a microchip to transmit product information. Another popular modern system is vendor-managed inventory. In such system, the vendor has responsibility for keeping its goods stocked in the store. The vendor and retailer work together and share all needed information (Crosby, n.d.).
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According to Kharad (2015), inventory management has several main types of techniques, which, in their turn, are divided into some special approaches. The first type includes techniques based on the order quantity of inventories. It comprises such approaches as stock level, minimum level and re-order level. The second large type includes techniques based on the classification of inventories. It consists of such sub-techniques as A-B-C analysis, aging schedule of inventories, VED analysis, and HML analysis. The third large type of techniques is called techniques based on records. They include such sub-techniques as inventory budget, inventory reports, and valuation of inventories (Kharad, pp.1518-1520).
In general, traditional inventory management deals with several typical inventory control problems. Modern techniques can be used to eliminate them; however, some issues may remain with the firm. The first typical problem is poor execution. It includes situations when products are not on their place in the store, or when they are sent to the wrong store or department. The second important problem is poor communication. It means that different people who are involved in the supply chain have different ideas and opinions, and understand problems differently. As a result, it is hard to resolve problems when they occur. Poor decision-making is the third issue. It may be found on all supply chain levels. When an inappropriate decision is made on one level, problems may occur on all levels of the supply chain (Orchestro, 2015).
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Safety stock is one of the concepts that are related to inventory management. According to King (2011), the concept of safety stock is simple: it is a part of inventory that is kept constantly to prevent stockouts. The latter are unpleasant for any firm, and they can often occur unexpectedly, for instance, because of unpredicted fluctuations in demand and sales, inaccurate forecasts, problems with vendors, and other reasons. Thus, any company tries to keep a safety stock to avoid such problems and make sales stable. In order to determine the required amount of safety stock, several formulas are used (King, 2011).
Many companies became successful due to proper inventory management. It allowed them to grow by satisfying customers’ needs efficiently. One of such giants is Nike, a firm that produces different sports goods for professionals and common customers. It was started in 1960s as an American competitor for the market leaders from Germany – Adidas and Puma. American businessman Phil Knight established Nike with the idea to become their competitors in sportswear, and he succeeded (Theodoros II, 2014). The company became successful due to many factors, and efficient inventory management is among them. Once it experienced problems with inventory management system, and it led to the loss of revenue. The issue happened in the year 2000 because of problems with inventory management software, in particular, with i2 demand-planning software. However, the problems were tactical and were fixed quickly. In addition, some functions were passed to its SAP ERP system, and it improved inventory management in general. The company succeeded in creating united, giant, and integrated database in its SAP ERP system (Koch, 2004).
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One more successful company that grew due to successful inventory management is Walmart. It represents a chain of stores with a wide variety of goods for different customers with different needs and incomes. It was started as a small discount store based on a simple idea to sell more goods for lower price. The customers liked the concept, and the store chain grew quickly. Currently, Walmart has about 11,500 stores in 28 countries, and the growth is expected to continue. In fiscal year 2015, the firm’s revenue was $482.1 billion, and it employed 2.2 million all over the world (Walmart, 2016). The company has an efficient inventory management system that allows working with many vendors from different countries and keeping prices low. In 2013, the firm faced some issues with radio frequency identification (RFID), as not all vendors implemented it. As a result, Walmart had both outstocks and overstocks for different products, and its revenue declined. Nevertheless, it coped with the issue (Rosenblum, 2014).
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Best Buy is a successful company with efficient inventory management, too. This firm sells different electronics and appliances in the chain of stores to different groups of customers. The company was founded by Richard M. Schulze and his partner in 1966. Initially, the store sold only stereo equipment for home and cars. Then, the firm spread its assortment and started to sell different home appliances. In 2013, Best Buy already had about 1,150 stores and earned revenue of $50 billion (Best Buy Co. Success Story, n.d.). The company succeeded due to many advantages, including inventory management system based on the regular communication with customers. Their feedback and current demand are used to form inventory that will be sold quickly. Feedback is received via different channels (At Best Buy…, n.d.).
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In conclusion, inventory management systems play a vital role for all enterprises. They have many purposes, and they all aim to minimize inventory-storing costs and sell as many goods as customers want, without keeping excess inventories. Many companies succeeded due to their inventory management systems, including such giants as Walmart, Nike and Best Buy.