INVENTORY MANAGEMENT

INVENTORY MANAGEMENT

Assalamualaikum……

Today our blog want to tell about inventory management.

The overseeing and controlling of the ordering, storage and use of components that a company will use in the production of the items it will sell as well as the overseeing and controlling of quantities of finished products for sale. A business's inventory is one of its major assets and represents an investment that is tied up until the item is sold or used in the production of an item that is sold. It also costs money to store, track and insure inventory. Inventories that are managed can create significant financial problems for a business, whether the management results in an inventory fill or an inventory shortage.

 

Inventory management is the process of efficiently overseeing the constant flow of units into and out of an existing inventory. This process usually involves controlling the transfer in of units in order to prevent the inventory from becoming too high, or dwindling to levels that could put the operation of the company into jeopardy. Competent inventory management also seeks to control the costs associated with the inventory, both from the perspective of the total value of the goods included and the tax burden generated by the cumulative value of the inventory.

Balancing the various tasks of inventory management means paying attention to three key aspects of any inventory. The first aspect has to do with time. In terms of materials acquired for inclusion in the total inventory, this means understanding how long it takes for a supplier to process an order and execute a delivery.

Calculating what is known as buffer stock is also key to effective inventory management. Essentially, buffer stock is additional units above and beyond the minimum number required to maintain production levels. For example, the manager may determine that it would be a good idea to keep one or two extra units of a given machine part on hand, just in case an emergency situation arises or one of the units proves to be defective once installed.

Inventory management is not limited to documenting the delivery of raw materials and the movement of those materials into operational process. The movement of those materials as they go through the various stages of the operation is also important. Typically known as a goods or work in progress inventory, tracking materials as they are used to create finished goods also helps to identify the need to adjust ordering amounts before the raw materials inventory gets dangerously low or is inflated to an unfavourable level.

Finally, inventory management has to do with keeping accurate records of finished goods that are ready for shipment. This often means posting the production of newly completed goods to the inventory totals as well as subtracting the most recent shipments of finished goods to buyers. Accurately maintaining figures on the finished goods inventory makes it possible to quickly convey information to sales personnel as to what is available and ready for shipment at any given time.

PURCHASING IN LOGISTICS

PURCHASING IN LOGISTICS

The optimal procurement solution.

In today’s globally networked world, a company has a number of material-procurement options. As a result, a company must think about its number of suppliers, procurement time, order size and procurement sites. Another question to be addressed is whether it makes more sense to select local suppliers or many different and sometimes widely distant ones. A company must also consider whether a supplier should use a just-in-time system or whether the company’s own buffer storage system should be put in place. It is only through the use of a mature procurement strategy that such questions can be answered and opportunities optimally used.

Best purchasing from reliable sources

A special relationship exists between procurement channels and procurement logistics. One key decision that must be made in purchasing strategy involves the determination of the procurement channel - e.g., the use of direct purchasing or purchasing assistants such as buying agents or wholesalers. This decision is heavily influenced by the suppliers’ sales-channel strategy. As a result of the similarities between the decisions involving distribution and purchasing strategy, execution can be transferred to distribution strategy.

Three points need to be stressed:

• The problem of the number of suppliers,
• The problem of the procurement time,
•  And the problem of suppliers’ geographic locations.

Number of Suppliers

In multiple sourcing, the large number of suppliers reduces the risk of dependency. For instance, it protects against delivery failures resulting from production disruptions at individual suppliers. At the same time, however, it puts a tremendous strain on the procurement-logistics system and results in a high level of complexity.
In the automotive industry, vertical integration is being constantly reduced. Sometimes, automakers install only component groups that have been preassembled by suppliers - e.g., completely assembled seats, doors and cockpits. For such component groups, the number of suppliers is frequently limited to one supplier (single sourcing) or two suppliers (double sourcing). At the same time, reducing the number of suppliers creates the possibility of lowering coordination and logistics costs. Through cross-company planning and management, material and information streams from the supplier to the customer can be efficiently designed. For those instances where particularly close relationships with suppliers have to be established, as is the case with, a reduction in the number of suppliers is unavoidable.
This is reflected in the trend toward single sourcing or double sourcing. In the process, the complexity of the procurement program can be reduced, cost-effective lot sizes can be achieved, quality assurance can be simplified, and transaction costs can be cut. At the same time, there is a growing risk of becoming dependent on the suppliers.

Procurement Time

Another question is the timeframe in which the material is to be provided to the company from outside.

Here, there are three general options:

1. Individual procurement as needed: In terms of individual procurement, the materials are acquired only after the need arises. In this manner, warehouse costs and capital tie-up created by stored procurement articles can be kept to a minimum. But one disadvantage is that production must be put off until the material arrives. If the delivery times promised to the customer cannot be kept, downtime costs can easily rise above savings achieved through reduced capital tie-up. 
2. Procurement with stock-keeping: In terms of procurement with stock-keeping, the materials are warehoused at a company for its own internal material use. As a result, the company’s needs can be met within a short time. This gives the company added independence from swings in deliveries or unreliable suppliers. Stock-keeping also involves large purchases. Among other things, this result in cost savings achieved through quantity discounts. On the other hand, the capital tie-up associated with this strategy is higher as a result of the stored materials. Warehousing costs climb as well. 
3. Just-in-time delivery: A customer can order a car based on his own desires and can change this order - frequently up to a week before delivery. The automaker could not offer this service without a production- or operation-synchronized supplier concept. With this supply system - just-in-time concepts or just-in-sequence programs - the flow of material between supplier and customer is optimized. As a result, short run times of the material, lower capital tie-up and reduced warehouse costs are achieved. But the just-in-time concept requires extremely reliable suppliers. In addition, an intense exchange of information forms the basis of this close working relationship.

OUTSOURCING

OUTSOURCING

Dear respected readers,

Nowadays many firms come out with an idea to control the firm efficiently by outsourcing. Outsourcing provides significant level to all departments in a firm because it determines the successful of a business. It helps the firm run properly within focusing its core competencies.

Outsourcing may be defined as the complete transfer of a business that has operated traditionally and managed internally to an independently owned external services provider. By implementing this concept, there are a lot of benefits that a firm can gain directly and indirectly.

Cost minimization is one of generic strategic benefits of outsourcing. The cost reduction can be accomplished by reducing direct operating costs and eliminate overhead costs. A firm also can obtain the cash infusion by transforming the fixed costs into the variable costs. For example, the firm will gain some cash by selling the related unnecessary assets that the firm does use it anymore because it has use outside party to handle the department.

Second, very hard to any firm around this world to secure many businesses which are out from its ability. Lacking of skill, knowledge and ideas could be as the barriers that constraint those from be succeed. This is why those firms figure out the important of outsourcing, refocusing the organization to its core competencies,  hire outside firms who are more expert in handling the activities that out of the main firm`s ability. The firm or organization can gives total focus to what the company does best. This wills an opportunity to concentrate in developing new products and services.

To provide the best ever service to the customers, the firm spends millions into research and develop department to heighten the quality of products.  This is why outsourcing is completely critical in improving the operating performance. Improvement in operating performance is accomplished by quality, productivity and obtaining new capabilities of the technologies from external firm.

Last but it not the least, outsourcing increases market share and revenue by developing the diplomatic relationship between the firm and the external firm, local and foreign country. It also can accomplish by assessing the providers` network and accelerating expansion into new market.

High commitment needed in implementing this concept a firm from highest level to the lowest level.

SINGLE OR MULTIPLE SUPPLIERS

  

SINGLE OR MULTIPLE SUPPLIERS

To determine the right suppliers is very important to a firm whether nationally or internationally.  This is the critical stage to many firms for running a business. Every single company in this world faces the same problem neither big or small company but some are considered to choose single or multiple suppliers. Both have their own advantages and disadvantages.

Single sourcing is determining a supplier for supplying the raw materials, part of components or purchased parts. A few suppliers are be determined that can supply the supply based on the company`s demand and need. A supplier will  be chose among of those supplier that send the quatation. For example, Proton only uses Silverstone as the one and only tyres supplier.

Single sources be able provide lower costs per unit by reducing the duplication of operations in areas such as setup.It also provides long-term contact around 3-5 years between the seller and buyer that ensure the supplier does not lose the business during this time to another competitors. The contract makes the supplier willing to invest in new equipment or change their operating method to accommodate the buyer. Cooperation and communication increases between buyer and seller with it.

Multiple sourcing refers to the number of supplier that a buying firm has that more than one supplier. The buyer tries to gain competitive advantage among those suppliers who can provide the best products within reasonable price. The buyer choose the outcome among the suppliers and the suppliers come out with reverse auction to get the buyer attention.

Multiple sources can guarantee an undisrupted supply of parts. If something goes wrong with one supplier such as a strike, a breakdown or natural disaster, the other suppliers can pick up the slack to deliver all the needed parts without a disruption. Second, multiple sources provide improvement market intelligence and improvement of supplier appraisal effectiveness. The buyer can  abreast  the new development and new technologies as they emerge across the field.

There are two mains categories of suppliers evaluation which  process-based evaluations and performance-based evaluations. The process-based evaluation is an assessment of the suppliers` production or services process. the performance-based evaluation is an assessment of the supplier's actual performance on variety of criteria.

The suppliers will be evaluate by some systems, categorical method, cost-ratio method and linear averaging. Those methods are very important in determining the right suppliers to the buyer' performance.

THE PURCHASING PROCESS

THE PURCHASING PROCESS

The Purchasing Process is an interacting structure of people, equipment, methods and controls that is designed to accomplish the following primary functions. Besides, to handle the recurring work routines of the purchasing department and the receiving department. Support the decision needs of those who manage the purchasing and receiving departments.     

The high degree of change in the business environment has created a new challenge for industrial and service enterprises. That challenge is to determine an organizational structure that minimizes administrative costs while maximizing service to its customers.

There are many reasons why a formal process must be followed including the prevention of fraud, cost saving, compliance with regulations, management of risk and control. To understand or to explain why a formal process should be followed it can be useful to think in terms of the 5 As.

·         Approved Suppliers

·         Approval Process and Segregation of Responsibilities

·         Audit Trail

·         Accounting
·         Automation

There is sometimes a significant amount of effort required to ensure that a supplier is appropriate for a particular category of goods or services. They should be able to supply goods and services that meet requirements of quality and fit for purpose. They should be reliable financially sound and not present a commercial or reputation risk and their prices should be competitive. It makes no sense to perform the relevant research on a supplier each time goods or services are required. By developing preferred suppliers, longer term sustainable relationships can be developed that deliver a better value for money.

The another ways to be a good purchasing management:

1.  Determine how & where spending has occurred by vendor or vendor type to gain a better understanding where savings opportunities exist. Use the information to aggregate spend across the organization, leveraging volume for improved pricing & increased efficiency.

2. Know your vendors & optimize supplier relationships. Develop vendor expectations &selection criteria based on historical vendor performance metrics. Develop a vendor scorecard with key metrics such as lowest cost paid, on-time deliveries & lead time required, and monitor the scorecard regularly.

3.   Establish a preferred vendor list based on historical performance and on-time deliveries.

4.  Gain spends management & budget control. Research historical total cost of ownership, not just costs.

5. Establish control & compliance with policies. Stop unauthorized purchases through systematic controls.

6.  Improve risk management. Mitigate risk by on-order and overdue shipment monitoring.

7.  Streamline purchasing processes by establishing systematic processes for requisitions, requests for quotes, purchase orders, and receiving.

8.  Lower inventory investment by conducting trend analysis to better predict future buying and production needs & overstock analysis to reduce existing, non-performing inventory.

9.  Measure purchasing performance. Consistently review statistics and use decision support tools to constantly improve purchasing and procurement activities.

10. Leverage technology. Quality purchasing, inventory & business management      software will manage the details for these activities, enabling you to use the information to increase efficiency and grow your business.

CORRUPTION IN PURCHASING

CORRUPTION IN PURCHASING

As you know purchasers or procurement officers are dealing with the suppliers to buy the raw materials and the purchased parts. Both parties create a good relationship with others parties not only to ensure their business could run promptly but they want that relationship can secure the good reputation to their companies neither the buyer company nor the suppliers itself. 

The good relation between those parties maintains the relationship among them by providing special treat like deregulation of contract. But, in order to maintain this relationship there are some individual try to manipulate these parties for its person’s needs. These persons are really irresponsible because they are creating a horrible atmosphere within the corruption `run legally’. This weather makes people sick and start dying due to the` annoying games’ that played by the greediness inside uncontrolled human being.

How many people in this world love to be played? The answer is no one in this awkward-wonderful world wants other peoples play those selfish ideologies on them. Why? You know the answer better than I am because you are clever enough for answering this question. This is about ethics to the county, commodity and the most important is to you.

 As a good logistician, do you think the corruption is the only solved way to ensure the cargoes can be transported? We have seen a lot of the corruption whether in the government institution or the private. This will cost a lot of disadvantages to the country such the entry of illegal items like drugs, weapons and cigarettes.

For example, Company A (manufacturer) runs a construction business. Company A has a contract with Company B that supplies the raw materials like sand, cements, rocks and other materials to construct a building, condominium.

 In the contract, company B (supplier) needs to provide the high-quality of materials with reasonable price. But, caused of corruption happened during receiving or delivering those items, the construction works run normally using the low-quality of materials.

 After a couple of years, the building is done. Months later, the building starts cracking and fall apart. A few die, the rest get injured, those victims’ families shed of tears and company A has a bad reputation only. This is not about money at all. 

This is about life, love and happiness. Last word from me, corruption is not a choice, put it away and live without a regret.

THE NATURE OF LOGISTICS

 THE NATURE OF LOGISTICS

The growing flows of freight have been a fundamental component of contemporary changes in economic systems at the global, regional and local scales. These changes are not merely quantitative with more freight in circulation, but structural and operational. Structural changes mainly involve manufacturing systems with their geography of production, while operational changes mainly concern freight transportation with its geography of distribution. As such, the fundamental question does not necessarily reside in the nature, origins and destinations of freight movements, but how this freight is moving. New modes of production are concomitant with new modes of distribution, which brings forward the realm of logistics; the science of physical distribution.

Logistics can be defined as the process of planning, implementing and controlling the the efficient, cost-effective flow and storage of raw materials, in process inventory, finished goods and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirement.

The application of logistics enables a greater efficiency of movements with an appropriate choice of modes, terminals, routes and scheduling. The implied purpose of logistics is to make available goods, raw materials and commodities, fulfilling four major requirements related to order, delivery, quality and cost fulfillment. Logistics is thus a multidimensional value added activity including production, location, time and control of elements of the supply chain. It thus enables a better managerial level of space-time relations and as such an important aspect of transport geography. Logistics acts as the material and organizational support of globalization requiring a complex set of decisions to be made concerning an array of issues such as the location of suppliers, the transport modes to be used and the timing and sequencing of deliveries. Activities comprising logistics include physical distribution; the derived transport segment, and materials management; the induced transport segment.

Physical distribution is the collective term for the range of activities involved in the movement of goods from points of production to final points of sale and consumption. It must insure that the mobility requirements of supply chains are entirely met. Physical distribution includes all the functions of movement and handling of goods, particularly transportation services (trucking, freight rail, air freight, inland waterways, marine shipping, and pipelines), transshipment and warehousing services (e.g. consignment, storage, inventory management), trade, wholesale and, in principle, retail. Conventionally, all these activities are assumed to be derived from materials management demands.

Materials management is to support the transformation of raw materials and component parts into shipped or finished goods. The function of inventory, in general, is to decouple the entire transformation process. During the transformation process, materials are combined with labor, information, technology, and capital. The five function inventory are

• pipeline inventories
• cycle inventories
• buffer stock
• seasonal  
• decoupling

The close integration of physical distribution and materials management through logistics is blurring the reciprocal relationship between the derived transport demand function of physical distribution and the induced demand function of materials management. This implies that distribution, as always, is derived from materials management activities (namely production), but also, that these activities are coordinated within distribution capabilities. The functions of production, distribution and consumption are difficult to consider separately, thus recognizing the integrated transport demand role of logistics. Distribution centers are the main facilities from which logistics are coordinated.

Distribution Center. Facility or a group of facilities that perform consolidation, warehousing, packaging, decomposition and other functions linked with handling freight. Their main purpose is to provide value-added services to freight, which is stored for relatively shorts periods of time. They can also perform light manufacturing activities such as assembly and labeling. A warehouse is a facility designed to store goods for longer periods of time.

Since it would be highly impractical to ship directly goods from producers to retailers, distribution centers essentially act as a buffer where products are assembled, sometimes from other distribution centers, and then shipped in batches. Distribution centers are established in part to deal with to different forms of a synchronizes in freight distribution such as different paces of production and consumption. Distribution centers commonly have a market area in which they offer a service window defined by delivery frequency and response time to order. This structure looks much like a hub-and-spoke network.

The wide array of activities involved in logistics, from transportation to warehousing and management, have respective costs. Once compiled, they express the burden that logistics impose on distribution systems and the economies they support, which is known as the total logistics costs. Costs are however not the only consideration in supply chain management since supply chains can also be differentiated by time, reliability and risk level. .

The emergence of logistics in contemporary supply chains is based upon continuous improvements in transport and inventory management costs, leading to lower cycle and lead times.

Cycle time. The amount of time required from the receipt of an order to when this order is completed (assembled) and ready for delivery. Often labeled as the completion rate and is mostly linked with the function of production in the manufacturing sector. Often labeled as the level of responsiveness of production.

Lead time. The time it takes for an order to be fulfilled, which includes preparation, packing and delivery to a designed location. Often labeled as the arrival rate and is mostly linked with the function of distribution, mainly its efficiency and reliability. Often labeled as the level of responsiveness of distribution.

Before the emergence of online purchases, customers were rarely exposed to the concepts of cycle times and lead times since goods were directly purchased at a store. The customer was seeing the outcome of cycle and lead times, but not the process. An online transaction, particularly if it concerns a complex and customization good (e.g. a computer) commonly includes the time it takes for the order to be ready for shipment and the delivery time from the distribution center to the customer's address.