4.4 Inventory management
Inventory means various things to various people, even within one organisation. The inventory manager sees it as his responsibility; the purchaser sees it as stock that is available to him; the materials manager sees it as something that he needs to maintain at certain levels; the accountant sees it as dollars. For all of them, dynamic inventory control gives real data on which they can base their decisions. Scanning an item at the time of sale provides information on consumption, available stock, any necessary adjustments to existing processes of re-ordering, moving over-stocks to places where demand is high. Electronic point of sale (EPOS) systems are widely used to provide such dynamic management but they should be regularly reconciled with the actual holdings to adjust for damage, theft or other inaccuracies that might creep into the system.
ABC classification. One of the basic principles in inventory management is ABC classification, based on the Pareto principle, which says that 20% of the product generates 80% of the sales. The ABC classification system is described with an example in your text. Basically, the principle it follows is this: the top 10% of the items are placed in class A, the next group in class B and the slowest in class C. Each group is handled separately, keeping in mind their particular market characteristics.
The next reading illustrates the use of the ABC classification and shows how that can be used to better the returns on investment.
Reading 4.4
Petry C (June 2001), 'Key calculations for effective inventory control', Metal Center News , pp. 1 - 33.
Very rarely can a logistics manager look at all his inventory and keep visual track of it. Often, inventory of large organisations is spread out all over the world, some of it in the 'pipeline' mode in transit on ships, aircraft, or on various land transport modes. To be able to effectively manage his inventory, the manager has to maintain records that can be adjusted continually to replicate sales, purchases, deliveries and so forth.
The basic form of record keeping is the scratch-in, scratch-out method in which each item is added or deleted manually. Clearly, this is not practical in most operations these days and sophisticated computer systems are used to perform essentially the same function, but with much more functionality added in the form of inputs and available outputs.
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