Inventory is an essential part of every business. Without inventory a business cannot produce and will most likely not succeed. inventory control is therefore as vital because it is about managing and controlling the working asset which aids the business. In essence inventory control is about establishing values to inventory on hand, determining whether there are enough inventories to meet the demands of the business, ensuring that there is not too much inventory which could result in wastage as well as eliminating or lessening theft. How inventory is categorised is dependent on the business operation.
Inventory levels within manufacturing enterprises will fall within three stock categories: raw materials, unfinished (also known as Work in Progress or WIP) and finished goods. A retail business for example a shoe shop will only have one kind of inventory and that is finished goods. Certain businesses will also adjust their inventory to reflect the seasonality of goods, once again the example of the shoe shop is used, in that the shoe shop might hold higher inventory of rain boots during winter than summer. The cost of holding inventories is also not to be underestimated.
The costs to be considered are storage costs, labour, insurance as well as interest on unused inventory. With the aid of computer programs inventory management has certainly evolved over the years. There are several established inventory management models. (Pearsons 2010) The first one is ECQ or Economic Order Quantity which is concerned with how much inventory to order and is based on the premise that demand is constant and inventory should therefore be replenished at a constant demand. Within certain enterprises such as a hotel, this could also be termed par stock.
There are many different fields in the business world. Business Management is the largest field in the corporate world. It takes responsibility, skill and determination to form a successful business of any type. There are numerous areas within a business that need the skills of management. Control of expenses, payroll, time management, and to initially raise capital to start a business all are ...
The second method is termed MRP or Management Requirement System which accepts predetermined sales as an initial point. A software program then aids the timely delivery of the required goods which coincide with production requirements. MRP is considered a top down inventory management process because ordering decisions are seen as dependent on production needs. The third method is the JIT or Just In Time method. The JIT ideology is simple, by holding only the inventory you need in order for production you can reduce your costs and manufacture only what there a demand is for.
By utilising this method companies claim advantages of increases on return on investment because the holding costs of carrying large inventory are virtually eliminated. However while this method sounds ideal, as the name implies there are many factors to consider including the need for stringent and extremely organised management and execution of tasks. The JIT method was first developed in Japan. As with most Japanese management methods it evolved within a business and further developed into an international accepted business method.
The business in this case is the Toyota group and first appeared shortly after the Second World War. Beasley (1984) explains the formation as follows: “Within Toyota Taiichi Ohno is most commonly credited as the father/originator of this way of working. The beginnings of this production system are rooted in the historical situation that Toyota faced. After the Second World War the president of Toyota said “Catch up with America in three years, otherwise the automobile industry of Japan will not survive”. At that time one American car worker produced approximately nine times as much as a Japanese car worker.
The Toyota Production System Case Study of Creativity and Innovation in Automotive Engineering. Balakrishnan INTRODUCTION Automobile Manufacturing Forty years ago, Peter Drucker dubbed it 'the industries of industries.' Today, automobile manufacturing is still the world's largest manufacturing activity. After First World War, Henry Ford and General Motors' Alfred Sloan moved world manufacture from ...
Taiichi Ohno examined the American industry and found that American manufacturers made great use of economic order quantities – the traditional idea that it is best to make a “lot” or “batch” of an item (such as a particular model of car or a particular component) before switching to a new item. They also made use of economic order quantities in terms of ordering and stocking the many parts needed to assemble a car. Ohno felt that such methods would not work in Japan – total domestic demand was low and the domestic marketplace demanded production of small quantities of many different models”.
In order to determine when materials were required several information system tools had to be developed. Instead of a top down approach workers were now encouraged to think only of what they needed, so rather a top down management approach a “pull” approach was used. The tools developed were an information card (kanban), display board (andan) and error prevention (poka yoke).
The control is now in the hands of the people doing the manufacturing, encouraging the employees to think for themselves.
However, these just remain tools if the principles surrounding inventory and the elimination of waste are not applied. Collectively these principles and tools have been combined to form the Toyota Production System further termed the Thinking Production System. Another important factor is the immediate elimination of any defects within the manufacturing process as there is little room for mistakes. It is interesting to note that just as manufacturing firms use the terms JIT, the companies supplying the materials have developed their own system which is called VMI or Vendor Managed Industry.
An example though is to consider the disadvantage of having the supply chain disrupted. A fire which occurred at a plant on a Saturday in Japan caused a halt in brake part production for Toyota. By the following Tuesday, Toyota had to close down its production line and lost an estimated $15 billion in sales. While the JIT system is obviously well suited to the manufacturing industries within developed countries it has seen little practical application in SME’s. Just as large manufacturing corporations can aid to any country’s growth, SME’s are too the oil which keeps a country running.
Recently, Wallace and his staff reviewed the business strategy in the manufacturing division. After revision, it became obvious that the marketing, engineering, and manufacturing strategies should be updated. The shipper Company has diversified into three separate divisions now, being the Electrical Products Division, the Materials Division and the Advanced Products Division. EPD produced a ...
Gunasekaran and Lyu (1997) state that SME’s fear the implementation of JIT because of the assumption of extra costs such as labour and materials. They go on further to state that JIT is more than simply adopting a new discipline, but going that one step further to developing a striving for excellence philosophy which is embraced. The JIT system is definitely not suited to all fields. One of the drawbacks is the need for an established and reliable supplier and as stated before will work best in developed countries.
This writer is of the opinion that JIT is an ideal philosophy and cost saving technique for large manufacturing enterprises, however its practical application in other fields has to be adequately determined. REFERENCES Advantages and Disadvantages of Just-in-Time (JIT) Manufacturing and Inventory Control System article available ONLINE at http://ritalogisticsblog. wordpress. com/2010/04/12/advantages-and-disadvantages-of-just-in-time-jit-manufacturing-and-inventory-control-system/ accessed 21 August 2011 Gunasekaran and Lyu 1997 – Implementation of just-in-time in a small company- A Case Study article available ONLINE at http://www. cribd. com/doc/36656046/jit-sme accessed 21 August 2011 OR Notes – JE Beasley 1984 article available ONLINE at http://people. brunel. ac. uk/~mastjjb/jeb/or/jit. html accessed 20 August 2011 The Toyota Production System available ONLINE at http://www. toyotageorgetown. com/tps. asp accessed 20 August 2011 University of Liverpool 2010 – Managing Resources – Third Edition – Pearsons