Inventory management system in the enterprise

Inventory management is an important part of the management policy of the company's current assets. The main goal is to ensure the uninterrupted operation of the production and sale of products and at the same time minimize the total costs that go to stock maintenance. And this was affected by automation. The inventory management system at the enterprise helps us.

general information

Stocks include not only materials and raw materials that are necessary for the production process, but also non-finished products and goods that can be realized. It is important to control their volume. Insurance stocks should always be, because seasonal outbursts of consumer demand and interruptions in supply have not yet been canceled. And all this can negatively affect the financial result of the activity. Of course, it should be noted that this can be attributed to the reserves, but on the other hand - they provide stability and liquidity of the enterprise. If there is a deficit, then production will stop, sales volumes will fall, and a situation may arise that will have to buy a batch of raw materials or materials at an overpriced price. As a result, the enterprise will not receive the possible profit. Also, due to the fact that stocks are liquid assets, their reduction will lead to deterioration of the current regulatory state of the enterprise. But here you must adhere to the golden mean. So, the surplus of stocks can lead to the fact that the costs for their storage will increase, it is necessary to overpay the property tax. Also, it is possible to get less affordable income due to the fact that financial resources will be frozen in raw materials and materials. In addition, we should not ignore the fact that they are subject to moral aging and physical damage.

Approaches

Speaking about inventory management, it should be noted that the choice of three activity plans for the formation of stocks is in front of the managing link. They differ in different levels of profitability and risks:

1. Conservative approach. In it, the rate is made not only to meet the entire existing demand for raw materials, materials and semi-finished products. It also provides for the creation of large reserves in the event of supply disruptions, deterioration of the conditions in which products are produced, delays occur related to collection of accounts receivable, buyers' demand is becoming more active. The use of this approach negatively affects the level of profitability and positively - at a possible risk.
2. Moderate approach. It provides for the creation of reserves for the most typical disruptions that may arise in the operation of the enterprise. Calculations in this case are based on data from previous years. In this case, an average level of profitability and risks is provided.
3. Aggressive approach. In this case, a minimum level of stocks is provided (although they may be completely absent). If during the operational process there is no failure, then the enterprise will get the best result of efficiency. But when problems arise, the enterprise incurs significant financial losses. Thus, you can get the most profit, but there is a significant risk of loss.

Management Model: Factors

All that was before was theoretical preparation. Now we will consider the development of a system of inventory management for the enterprise. For this we need to take into account a number of factors:

1. The conditions under which the reserves are purchased (volumes of supplies, frequency of orders, benefits and discounts).
2. Features of the realization of finished products (the state of demand, reliability and development of the dealer network, change in the level of sales).
3. Characteristic nuances of the production process (features of the technology of creation, duration of preparation and direct provision of products).
4. Costs that arise during storage of stocks (freezing of funds, possible damage, storage costs).

The inventory management system in an enterprise can be built on several specific methods. Each of them has its own specific features.

The Wilson Model

Used to ensure that the inventory management in the logistics system has been optimized to the maximum. It can be applied to get answers to such questions: what stocks should be; How much material and raw materials are needed per unit of time; Optimal delivery size. In addition, they consider other provisions that need to be resolved. According to the Wilson model, one can be convinced by mathematical means that the enterprise is interested in ordering raw materials, materials and goods in the largest possible quantities. In this case, spending on transportation costs, clearance and the like will be minimized. And this will directly affect the profitability of the enterprise. It also allows to select the minimum permissible standard level of reserves, which will avoid high operating costs, which are used to store raw materials, materials and semi-finished products. What are the parameters of the inventory management system in this case? To fully use the model you need to know:

1. That it can be applied only for one type of goods. In this case, its quantity must be continuously measured.
2. The level of demand for a particular product, which is constant in time.
3. Production is carried out in separate batches.
4. Orders come in a separate delivery, which entails additional costs.
5. Expenses of stocks occur continuously.
6. Delivery and order costs are constant values (or you need to deduce an average number). And in this case transport, operational and other expenses are meant.
7. Cases with additional supplies of goods and discounts for a large volume of orders are not considered.

What is used in practice?

What are the main inventory management systems used? What are their features? Let's look at an example. And as an object under investigation, the ABC reserves control system will perform. It is built on volume-cost analysis, which divides all types of stocks into certain groups, depending on the magnitude of sales and profits. In many cases, it may turn out that 70-80% of all sales fall on 10-20% of goods. This is Pareto's principle in action. In such cases, the inventory management system offers to focus on the most important products and goods, as well as effectively manage them, so as not to spend extra money on less important areas. Within the framework of the system, the cost, volume and frequency of expenditure, the consequences of a shortage of certain raw materials and the like are of great importance. The division is carried out in different categories. Let's consider them.

Classification of ABC system categories

There are three in total:

1. Category A. This includes the most expensive types of stocks that have a long cycle of use. They require constant monitoring, since in case of their lack, there will be serious financial consequences. To determine when their delivery should be optimized, the Wilson model described above is used. Specific commodity-material values, as a rule, are available in a very limited number and require weekly monitoring.
2. Category B. This includes commodity and material values in the matter of ensuring the continuity of the operational process and the formation of the final financial result. As a rule, stocks from this group are monitored only once a month.
3. Category C. The inventory management system of ABC here includes all commodity-material assets, which have low cost and which do not play a significant role in the formation of the final financial result. The volume of purchases in this case will be quite large. Control over the movement of stocks is usually not more than once a quarter.

Valuation of inventories

In practice, the following methods can be used for this purpose:

1. LIFO. In this case, the effect of inflation is smoothed out when the profit is formed. This method is suitable in the event that it is necessary to have an objective evaluation of the result obtained. The positive side is that it allows you to reduce the amount of property tax.
2. FIFO. Positively affects liquidity, reduces costs and increases profits.

To sum up

What is the inventory management system? This is a full-fledged set of measures aimed at creating and replenishing stocks, as well as organizing continuous monitoring and operational planning of deliveries. An important role here is played by feedback, or rather, how it is implemented. The best result is when the representatives of the manager can quickly obtain all the necessary data, make decisions and implement them. Automation tools are widely used for this. To explain the device, you can work with a three-level model.

Implementation

At the first level, information about the material stock of the inventory management system is formed due to warehouse programs and databases. Thanks to them you can get all the information about the movement of raw materials, materials and semi-finished products, as well as information about loading or shipping something. The second level of the system is formed from different models of inventory management. They use all the necessary mathematical tools to assess the current state of stocks and develop recommendations for effective management. At the third level, a financial management model is used, as well as software limitations that allow you to monitor the financial state of stocks. In this case, the economic effectiveness of decisions is estimated, sources for the acquisition of raw materials and materials are determined. In addition, this model deals with the overall financial strategy of inventory management. The presence of software implementation and automation means can significantly increase the level of efficiency and ultimately save on the staff of economic workers.

Improvements

The question arises: how can you improve the inventory management system? To begin with, care should be taken to ensure that the right information is available at any time. In this invaluable help can provide cloud technology. They will allow you to get data from an arbitrary point on the globe - just be the Internet. In addition, the most advanced inventory management systems have algorithms for calculating the expenditure of raw materials. Therefore, they can provide high-quality forecasts and recommendations when it is necessary to replenish the warehouses. In this case, the role of an individual is reduced only to the design of orders and to monitoring the normal operation of the system.

Create ACS

Suppose an automated control system is created. In this case, the following factors will be of considerable importance for the algorithm:

1. Production capacity.
2. The necessary amount of reserves for the normal operation of the enterprise.
3. The volume of production that is produced for certain periods of time (such are the day, week, month). In some cases, even a year can be taken as a basis.
4. The level of reserves at the time of introduction of the system into operation.
5. Frequency of deliveries.

MRP

This is also a system of inventory management. We will consider it as an alternative to the previously mentioned ABC. There are two configurations: MRP-1 and MRP-2. In the first, information about the arrival, movement and consumption of stocks is processed and corrected. Also, replenishment and control strategies for each position are provided. To solve the management tasks, there is a special order file, which contains all the information. MRP-2 is favorably distinguished by a wider range of functions performed. It includes production and financial planning, as well as logistics operations. Analysis of the inventory management system allows you to know where, what and how much there is.

Conclusion

A system of inventory management is necessary for every enterprise that plans to function successfully for a long time. After all, it allows you to exercise the function of control and replenishment of reserves. Automation tools play an important role as a structural element. We can safely say that they will gradually improve, and in the future we will be able to see this structural part of the enterprise as an autonomous system that only needs tuning. It can carry out its activities independently.