![]() There can be a considerable amount of ongoing adjustment to reorder levels to fine tune these issues. The reverse problems arise if the reorder point is set too high. If the reorder level is set very low, this keeps the investment in inventory low, but also increases the risk of a stockout, which may interfere with the production process or sales to customers. Adjust Reorder PointsĪ key part of inventory control is deciding upon the best inventory level at which to reorder additional inventory. This can involve a broad array of actions, such as using production cells to work on subassemblies, shifting the work area into a smaller space to reduce the amount of inventory travel time, reducing machine setup times to switch to new jobs, and minimizing job sizes. It is possible to reduce the amount of inventory that is being worked on in the production process, which further reduces the inventory investment. This may also lead to the use of a just-in-time manufacturing system, which only produces goods to specific customer orders (which nearly eliminates inventory levels). However, the cost of investing in so much inventory may exceed the profits to be gained from doing so, so inventory control involves balancing the proportion of allowable back orders with a reduced level of on-hand finished goods. Thus, there may be a pricing premium associated with having high levels of finished goods on hand. ![]() Ensure Finished Goods AvailabilityĪ company may be able to charge a higher price for its products if it can reliably ship them to customers at once. Few suppliers are willing to do this, given the cost of frequent deliveries, so a company may have to engage in sole sourcing of goods in order to entice suppliers into engaging in just-in-time deliveries. The key control designed to address this balance is ordering frequently in small lot sizes from suppliers. There must be enough raw materials inventory on hand to ensure that new jobs are launched in the production process in a timely manner, but not so much that the company is investing in an inordinate amount of inventory. Doing so reduces the risk that the errors found will occur again. The last part is critical - if there are errors, be sure to examine the associated transactions to see where the error occurred, and fix the issue. This means counting a small portion of the inventory every day, comparing the results to recorded balances, and investigating errors. To build on our theme of working with real time data, the warehouse staff should constantly count the inventory, using cycle counting. By doing so, inventory control personnel can more easily see exactly where there are inventory problems, and start working on solutions right away. This means that every transaction is recorded at once. A better approach is to make all changes in real time. The resulting data is too old to be of any use. Collect Data in Real Time DataĮffective inventory control is nearly impossible if inventory records are updated after the fact, in batch mode. Some of the more common areas in which to exercise inventory control are noted below, along with tips on how to do so. Given the impact on customers and profits, inventory control is one of the chief concerns of businesses that have large inventory investments, such as retailers and distributors. The goal of inventory control is to generate the maximum profit from the least amount of inventory investment without intruding upon customer satisfaction levels. Inventory control is the management of a company's inventory to maximize its use.
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