4.4.1 Inventory management systems
Reading 4.5
Bjork R (December 2000), 'Inventory management systems', Internal Auditor , pp40 - 44.
This paper focuses not only on the management of inventory but also on how the organisation runs its business. The point is made that, regardless of the systems used, it is the people who make the systems work.
Tracking procedures become more important when inventory is spread over many points. In organisations that have global operations, this can be seen to be crucial to their functioning effectively. Even for operations that are much smaller in scale, inventory management systems play a crucial role that underpins the commercial success of the organisation. In the aviation industry, for example, inventory is maintained at various points around the globe but can be accessed from any location. On the other hand, small businesses that have a few outlets only can decide to pool inventory for all outlets in one place and manage it centrally. Some items in the inventory are easier to track because regulations require that they be suitably numbered and identified (pharmaceuticals, vehicles, spare parts for machinery are examples) but other items (clothes, for instance) may not be so formally tracked. Such items are then tracked by the organisation's inventory management systems.
Bar coding. Historically, supermarkets have been taking the lead in developing responsive inventory management systems. When Toyota were devising their JIT system, they studied the processes of supermarkets carefully to see what lessons could be learnt. The most frequently used method of inventory management in supermarkets is bar coding. Bar codes are commonly based on the universal product code (UPC). If you consider the usual experience of supermarket shopping, you see that the customer collects their purchases and goes to the checkout where the items are scanned. If there is a supermarket store card in the name of the customer, this is scanned first. This links the customer to the purchase that is being made. The information is recorded in a computer that provides the checkout operation with the price, any tax, any special offers that may apply, and any regulatory restrictions that may be in place. It provides the total cost of purchase and prints out the receipt.
On the other side of the transaction, the system is recording particular customer preferences and shopping patterns, as well as the items that have been removed from the inventory. In this way, bar codes help to monitor stock levels and instigate re-order procedures. The result of using bar codes is efficient movement of stock from supplier to customer and a drop in the amount of stock that has to be stockpiled. When allied to a customer card, a large amount of data on the customer can be maintained which helps when designing promotions aimed at specific groups of customers.
Bar codes use the thickness and separation between bars to code information. The scan can read the full information in very quick time. Generally, bar codes are mono-dimensional, which limits to some extent the amount of information that can be stored in the code. There is a move towards the use of two dimensional codes, e.g., with UPS. The drawback of these is that they must be scanned in two dimensions for all the information to be read.
Increasingly, containers are tracked through terminals by scanning the barcodes on them as they go on their journey, often without stopping at the gate. This speeds up movement of cargo while maintaining track of their movement.
Wireless tracking. Sometimes called radiofrequency identification (RFID), this method uses small transponders and readers that are linked to an information management system. This allows the tracking of a large range of items. The technology is applied in a wide range of logistics operations, from automatic handling in terminals and warehouses to production line functions. The versatile nature of this technology permits its application in areas which can be unfriendly to human presence, such as, toxic environments, heat and other micro atmospheres which can degrade human performance.
The fundamentals of the working of this technology are that the transponder responds to a signal from an antenna and sends back a signal. This information can be merely recorded or rewritten into another function and exchanged with a control or activating system. This allows operations in the dark, permits automation in a wide range of activities and keeps operating costs low and tracks tagged items in real time. Incrementally, this technology is replacing bar codes.
Global positioning systems (GPS). These systems use an array of satellites to produce very accurate location coordinates. GPS is widely used to track vehicles, ships, aircraft, containers, and shipments. The use of this system allows, in conjunction with the organisation's management communications systems or the Internet, the availability of real time tracking and location of items or shipments. The widespread use of this technology has made it a base technology for managing the logistics chain.
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