BACKGROUND OF STUDY
Inventories are the key resource in an industrial enterprise since NO production is possible without inventories. Inventories also form a major constituent of the cost of the product and therefore proper control over their procurement, storage, issue, movement and consumption is necessary. Before going further it is necessary to define what does inventory mean?
Inventories are Assets:
a) Held for sale in the ordinary course of business.
b) In the process for such sale.
c) In the form of materials or supplies to be consumed in the production process or in the rendering of services
IN THE BEGINNING
Prior to the ...view middle of the document...
There was often one supplier from spoiling, or each market in each area of business. Except for the basic necessities of life, there was much local specialisation and distinct specialisation by region. For example, although there was might be more than one grist-mill in a community, there would often be only one general store. If customers were unhappy with their existing supplier, they had to suffer some inconvenience to find an alternate source because of the monopolies that existed. This made it easier for business to market their products and allowed them to maintain large stocks if they had the capital to do so.Inventory management was a concern then, as it is now. Inventories had to be monitored for accuracy and quality. They had to be protected from the elements, from theft, from changes in the local economy. Tax laws could have an enormous impact or inventory levels.
THE EARLY TWENTY-FIRST CENTURY
Today’s business would shares few similarities with yesterday’s. Communication is quick, easy, reliable, and available through a host of media. Supply is certain and regular in most environments of merchandising and manufacturing. Tax laws are generally consistent and reliable. However, market changes can be abrupt and difficult to forecast. Global competition exists everywhere for almost everything. Products are available from anywhere in the world, with delivery possible within in one day in many cases. Competition is driving the price of most products down to minimum profit levels. Inventories are managed for minimum profit levels. Inventories are managed for minimum stocking levels and maximum turnover. In the twenty-first century, high inventory is a sign of either mismanagement or a troubled economy. It is expensive and wasteful to hold and maintain high inventory levels. Proper utilisation of space is also critical component in today’s business world, whether one is a retailer, wholesaler, or a manufacturer.
Modern retailers and manufacturers are equipped with an array of tools and support mechanisms to enable them to manage inventory. Technology is used in almost every area of inventory management to help control, monitor, and analyze inventory. Computers, especially, play an enormous role in modern inventory management.
INVENTORY MANAGEMENT SYSTEMS
Ongoing analysis of both inventory management and manufacturing processes have led to a innovative management systems, such as just-in-time inventory or the economic-order quantity decision model.
Just-in-time inventory process developed by the Japanese based on a process invented by Henry Ford. David Wren(1999) describes how the process started:
Henry Ford managed to cut his inventory by forty million dollars by changing how he obtained materials to produce automobiles. Through a process called vertical integration, Ford purchased mines and smelting operations to better control the source and supply of material to produce cars. In this way he was able to reduce his standing...