Inventory_Systems

Inventory Systems – Learning Team B Quantitative Reasoning for Business/QRB501 Date: December 19, 2011   Table of Contents Page Abstract 3 Introduction 4 Examples of Inventory Systems 4 - 6 Advantages and Disadvantages 6 - 9 Conclusion 9 - 10 References 11 Abstract Inventory systems are critical to the smooth functioning of every retail and wholesale operation. Organizations utilize different inventory systems based on their requirements and the capabilities of their resupply system. This paper will show different inventory systems from the United States Army, Boeing, Dos Locos Mexican Restaurant, and Wal-Mart as well as an overarching inventory system provided by Microsoft. This paper will analyze each system and compare and contrast them based on their advantages and disadvantages.   Inventory Systems An inventory system is the way an organization maintains inventory of its stock. Most inventory systems are software based-tools that automate the process of tracking inventory, though some organizations still use manual inventory. Inventory control systems can include almost any quantifiable good from food and clothing to equipment or ammunition. It can be any item that an organization needs to maintain for its consumers, retailers, or wholesalers (Barcodes Inc., 2011). Most modern inventory control systems use barcode or radio frequency identification (RFID) technology, though some organizations do use manual inventory systems. Below are five examples of such inventory systems. Examples of Inventory Systems The United States Army uses a perpetual inventory system called the Standard Army Ammunition System – Modernization, or SAAS-MOD, to maintain inventory of ammunition supplies worldwide. Haber defines a perpetual inventory system as “an inventory system in which the balance in the inventory account is adjusted for the units sold each time a sale is made” (Haber, 2004, p. 161). SAAS-MOD is an automated accountability system that continually updates the stock record every time a supply point ships, receives, issues, or receives a return of ammunition. The theater ammunition manager then reviews this stock record data to determine what to ship, retrograde, or leave in place. Although the data is automated and viewable instantly worldwide, the munitions movement process still requires a human interaction to input the data and authorize shipment. The Boeing Company has a diverse inventory tracking and control system as a component of its Enterprise Resource Planning (ERP) system. The integrated ERP system manages a customer’s order from the point of sales, where the order is loaded into the system. Sales Orders establish the manufacturing resource requirements which impact the entire system, from engineering, to manufacturing, to purchasing, to inventory and warehousing, and ultimately to finance. The inventory system establishes the balance between the requirements and available inventory. The system is fully automated to create a smooth flow of information throughout the company (Boeing Intranet, 2011). Wal-Mart uses a supply focused warehouse inventory system created by Alien Technology to ensure accurate accounting of its inventory. Warehouse inventory systems are some of the most complicated systems available. One author describes warehouse inventory systems and says, “Planning identifies all deliverable products and services, describes the products, and defines the process to make the products and deliver the service” (Stutzke, 2005). These types of systems require extensive organization to ensure that every cycle and every step of the business cycle runs smoothly. Similarly, Commerce Server 2007, a system used by many retail businesses, provides an inventory system for the real time management of inventory items in the catalog (Microsoft, 2011). Commerce Server 2007 supports updating inventory information for all items, monitoring inventory depletion, and importing and exporting inventory information to and from external systems of record. It includes support for the following functions: Runtime APIs (application program interfaces) with methods for searching, browsing, viewing details, and inventory search options that include product filtering, and assigning inventory conditions (Microsoft, 2011). As a small business, Dos Locos Mexican Restaurant uses a manual inventory system. The process of a manual inventory is simple. The owner or manager of the company manually counts each item at the end of the month and places an order for restock. A list of items is originally written or typed on a piece of paper with grid lines. As each item is counted, the amount is recorded on the paper within the grid lines. The items are then tallied, showing which products need reordering. Advantages and Disadvantages Each inventory system has advantages and disadvantages. Using the Summer Historical Inventory Data provided by University of Phoenix (University of Phoenix, 2011), we will see how each system would handle management of inventory. The data is below: Month Year 1 Year 2 Year 3 Year 4 Average 1 18,000 45,100 59,800 35,500 39,600 2 19,800 46,530 30,740 51,250 37,080 3 15,700 22,100 47,800 34,400 30,000 4 53,600 41,350 73,890 68,000 59,210 5 83,200 46,000 60,200 68,100 64,375 6 72,900 41,800 55,200 61,100 57,750 7 55,200 39,800 32,180 62,300 47,370 8 57,350 64,100 38,600 66,500 56,638 9 15,400 47,600 25,020 31,400 29,855 10 27,700 43,050 51,300 36,500 39,638 11 21,400 39,300 31,790 16,800 27,323 12 17,100 10,300 31,100 18,900 19,350 Total 457,350 487,030 537,620 550,750 A primary advantage of SAAS-MOD is the instant visibility of stocks by ammunition managers who may be half a world away from the supply point itself. This gives them the capability to forecast requirements and ship stocks, which may take a week to six months to arrive based on the location of the supply point. If the ammunition manager saw the data above for an item in an ammunition supply point (ASP) in Afghanistan, which we will call ASP-X, they would know that the annual demand increased by 2-9% per year. The forecast for ‘Year 5’ would incorporate this data and ensure enough munitions were on hand. Because ammunition resupply to Afghanistan can be time consuming, the manager cannot provide just-in-time resupply to ASP-X and must calculate the appropriate overage to support unexpected demands. The advantages of a manual inventory system are simplicity, low cost, and a sense of control. The simplicity consists of someone counting the items at the end of each inventory period. At Dos Locos, the owner manually counts the inventory of food, beverage, and liquor at the end of each month. He or she does not need to spend money on a high-tech bar code inventory system. “A manual system gives a business owner a greater sense of control. Rather than relying in a computer to indicate when it is time to reorder, the owner can manage the process on his own” (Joseph, 2011). The owner would look at the data above and just reorder the used supplies as needed at the end of each month. Although this is an advantage for a small business, manual inventory can be a disadvantage for a large organization like the Army. The Army still conducts manual inventory at the retail level with the data manually input into SAAS-MOD after the transaction takes place. The potential for human error is significant enough that Army Regulation 710-2 requires ammunition supply points to conduct a 100% physical inventory every month or every quarter, depending on the type of item (Army Publishing Directorate, 2008). Manual inventory systems also can be highly labor-intensive to operate. The owner or manager must continually monitor each transaction and maintain stock levels. Because inventory is not done through computerization, a level of difficulty arises when trying to share inventory data or retrieving past inventory data. “The time spent monitoring inventory levels could be used on more productive activities for the business” (Joseph, 2011). The advantages of Boeing’s EPR system are many, but the primary benefits that interest Boeing involve rolling-up costs to the end product. Managing costs is a major aspect of Boeing maintaining a competitive advantage of providing the highest quality military products at a competitive price. Balancing the costs of inventory with the benefits of inventory to ensure efficient production is an essential piece of the Boeing inventory management philosophy. The capabilities of the system assist with managing the fine line between keeping too much inventory and not possessing enough. The system maintains a wide assortment of stock, from expensive low-quantity items to low-cost high-quantity items, and everything in between. The system allows suppliers to see inventory levels on the items that they supply on min-max contracts (consumption based ordering), which is extremely beneficial for both the supplier and for Boeing. Using the data above, suppliers would know how much product to send and when to send it. Using the instant data at their fingertips enables them to provide timely support without requiring Boeing to maintain huge parts warehouses. Wal-Mart’s warehouse inventory system also allows them to cut down on excess inventory storage. It also keeps them up-to-date with the right amount of inventory to soothe over demand for a product. This type of system keeps everyone involved in the distribution process to maintain warehouse organization, allowing management to keep an eye out on any changes in the inventory or inventory data. The two main disadvantages of Wal-Mart’s system are the expense of the process and the complexity. This type of software and management type of system make it difficult for small businesses to afford. It can even take a considerable amount of money out of the budget of a large corporation. Wal-Mart’s Alien Technology system saves money in the long term, but initially requires significant money and resources to install. A case study on Alien Technology describes their work at Wal-Mart as “a system to track its products, using EPC-compliant Alien Technology Gen 2 Squiggle Tags. The Squiggle Tag is a high-performance solution that is effective for the fast-moving warehouse tracking needed during inventory boxing and shipping, and it also works with shrink-wrapped pallets” (Alien Technology, 2007). The other downside to a complex warehouse inventory system is the complexity. This type of software requires significant training and understanding of how the product works, and the company may lose additional money by taking employees off the floor to learn these new, complex systems. The primary advantage of a system like Commerce Server 2007 is the ability to maintain a single source of data for the company and the customer. The system can maintain product data, customer data, and advertising data and provides multiple data analysis options (Microsoft, 2011). Because both Commerce Server 2007 and Wal-Mart’s Alien Technology system work in real-time to manage product, retailers could look at the data above and see the need to order more product immediately when stocks become depleted. For example, in the data above, between April and May of ‘Year 4’ the use per item almost doubled. When this is seen in real-time, both systems would automatically order replacements to restock the shelves. A disadvantage of every electronic inventory management system is that the data is only as good as the people responsible to make the inventory transactions. If people input bad data, the system generates bad data, and it does it very quickly. An erroneous data input can easily result in double ordering or failure to order. Because the systems are automated, the error would likely not be noticed until it was too late. Conclusion There are many different inventory systems. Large organizations are better served by automated systems that allow real-time viewing and resupply of inventory. While some systems may cope with the challenges of resupply better than others, the automated systems greatly reduce the workload of maintaining the inventory while vastly improving the accuracy of the inventory. Small organizations are more likely to use manual inventory systems. The disadvantages of manual inventory may be out-weighted by the costs of maintaining an automated system for a small business. Regardless of which system an organization uses, every organization ensures the careful management of its inventory to provide the best product or support to the customer as possible.   References Alien Technology. (2007). Lexar gets a clear snapshot of warehouse inventory with alien RFID. Retrieved from http://www.alientechnology.com/docs/CS_Lexar.pdf. Army Publishing Directorate. (2008). Supply policy below the national level. Retrieved from http://www.apd.army.mil/pdffiles/r710_2.pdf Barcodes Inc. (2011). Inventory systems. Retrieved from http://www.barcodesinc.com/articles/inventory-control-system.htm Boeing Intranet. (2011). WDS033 inventory data control/MRP data control. Retrieved from http://webeprod.hv.boeing.com:7779/webviewdoc/contract/summary/4inv03.pdf Haber, J. R. (2004). Accounting Demystified. American Management Association International. Joseph, C. (2011). Advantages & disadvantages of a manual inventory control system. Retrieved from http://smallbusiness.chron.com/advantages-disadvantages-manual-inventory-control-system-22693.html Microsoft. (2011). Commerce Server 2007. Retrieved from http://msdn.microsoft.com/en-us/library/ms942233 Stutzke. (2005). Planning a warehouse inventory system. Retrieved from http://ptgmedia.pearsoncmg.com/images/0201703122/samplechapter/stutzke_ch02.pdf University of Phoenix. (2011). Summer historical inventory data. Retrieved from University of Phoenix, QRB501 - Quantitative Reasoning For Business website.