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The user interface is tailored to the organisation. The users see simple options for the primary functions they need. Rarely used administrative functions do not obscure the day to day operations. Secondary functions are normally accessed from within the forms to which they relate. This provides a very intuitive and natural interface, eliminating those frustrating hierarchical menus. However, the client may specify any other form of preferred navigation.
Data maintenance forms for details such as products and suppliers include the standard fields required for normal stock control operations, but are then customised and formatted to meet specific business requirements and to reflect the layout of existing forms.
Bespoke enquiries allow your users to quickly find the information they need to do their job, using the most convenient search terms, pulling relevant data out from anywhere in the database, and performing any desired calculations.
Pre-programmed reports and management information to your specification. User defined Microsoft Access database queries and reports. Option to export to Microsoft Excel for complex analysis or to produce charts and graphs.
Custom software can save an enormous amount of time and dramatically reduce errors by automating any repetitive process, such as calculating stock requirements, or re-ordering to replenish stock levels and automatically generating the required purchase orders or transfer requisitions.
Using bar code scanners to log stock movement in or out greatly improves accuracy and efficiency. Bar code labels can easily be printed from stock records held in the database. Click here for more bar coding details
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Courtesy of the Business Open Learning Archive
Maintained and developed by C JarvisInventory incurs costs, ties up working capital, it consumes space and must be managed in and out. Stocks can deteriorate or get stolen. Most operations, capacity planning and scheduling, depend on inventory. Stocks serve to smooth out timing gaps in the rates of supply and demand. Inventory offers insurance and good planning/ control can minimise the associated costs and satisfy efficiency/effectiveness requirements. This is the raison d'etre for a just-in-time approach to inventory.
Services generally are not stocked nevertheless in car repair services and retail distribution, inventory of support items are components of service transactions. For a central heating installation company, if a fitter has to drive to and queue at a supplier to obtain a minor part - this adds to service costs.
All organisations keep inventories - some trivial, some highly significant. Even the trivial can from another perspective e.g. health and safety take on a different degree of importance. What is trivial to one organisation is important to the next e.g. cleaning materials - trivial in a factory but essential to a supplier of cleaning materials. Spares, stationery, consumables are common inventory to all organisations.
Types of stock/inventory
| Slack et al. | Galloway |
| buffer/safety | raw materials |
| cycle | finished product |
| anticipation | work in progress |
| pipeline | consumables |
| spares | |
| strategic stock holding |
Single and multi-stage inventory systems
A retail shop exemplifies a single stage inventory system. Supplier deliveries are taken into stock and sold. For a supermarket there are two stages. The supplier e.g. Nestle will supply, say, a Safeway regional distribution centre which supplies each supermarket. A washing machine manufacturer will transform raw material stocks through several stages with work in progress stock existing between each stage. Finally the whole of a supply network between companies making different ingredients to many products can be charted. Yarn manufacturers supply fabric firms who supply clothing firms. The cloth may be distributed to retailers via regional depots. Quantities of fabric may be sold direct to customers in the "factory shop".
Out-of-stock situations
Operations mostly depend on stock. Raw materials shortage in manufacturing
means halting production, rescheduling to make something that has raw
materials or quick action to secure alternative supply.
Obviously average inventory for a stock item is represented by half the stock. A replenishment delivery is received (Q) and is added to any remaining stock. In an out of stock situation some of it may indeed be allocated already to outstanding (waiting) orders. The stock is now issued to jobs and orders and steadily depletes.
A personal computer assembly line that runs out of memory chips must stop; if a Wimbledon runs out of strawberries might perhaps change to peaches. If a paper supplier is hit by strike action urgent approaches will be made to other suppliers.
If finished goods are out of stock, or raw materials or consumables shortage affects the customer ("sorry, the soup is off today") then customers may go off elsewhere, orders may be cancelled. Loss of goodwill means that competitors develop a relationship with your customer. All stock outs involve costs.
Costs of Inventory
Costs are tied up in the inventory itself and in ordering and carrying the stock.
Holding costs
- expressed as a % of stock value and may be 15-30 % per annum.
Acquisition/ordering costs
Costs arise from ordering/acquiring goods regardless of the actual value of
the goods. In both making to stock and making to order, stock acquisition
costs are incurred. Replenishment and purchasing administration paid for. It
may take a skilled operator an hour to set up equipment for a new order or
scheduled batch. Material may be wasted in the set up process. On completion
of the job, equipment must be cleaned and tools put away. The inventory
associated set-up costs include labour, material wastage, associated loss of
production time collecting or waiting for stores, paperwork and
administration. The set-up cost may easily be £30-50 irrespective of the
order or batch size.
The purchasing order processing costs include receiving the goods, delivery for large or small orders and invoice processing. Precise costs per ordered unit are often elusive, but the staff and overhead costs are significant. In actual terms £40 may be incurred to initiate and process one purchase order.
Ad hoc purchasing must be compared with long-term contracts involving regular deliveries perhaps with just-in-time supply or amounts that the operation can "call off" from a supply agreement over, say, a quarter. There are costs in
Basic Inventory Mathematics
Stock control mathematics are very straightforward and relate to the identification of re-order levels, calculation of economic order quantities, safety and service levels and so on. Generally the input and output sides of the inventory management system are separated and it is assumed that
on the supply side
- receipts go straight into available stock without delay.
on the demand side
- issues from stock are in small amounts relative to total usage e.g. if
2,500 boxes of computer paper are used per annum, they are
issued/distributed to departments in lots of twenty or less, rather than say
five issues of 500. A materials requirements planning approach is more
suited for occasional, large discrete issues.
Calculation of economic order quantity seeks to reconcile ordering and holding costs for an optimum order size. Costs of holding stock and ordering/acquiring it are involved. We need to evaluate whether safety stock and service/availability levels are needed and we need data on lead time and demand. The mathematics involve arithmetic and a basic understanding of normal distribution and standard deviation.
Inventory Control Systems
It is important to understand systems of inventory management. As demand and lead times vary we can order fixed quantities of stock at variable times or order variable quantities at fixed times. Each has implications for safety stock, operational responsiveness, the level of risk involved given variable demand and supply and security. Many factories will use a two-bin replenishment system. Stock records systems, computerised more often than not today, provide move detailed control over stock levels, issues and receipts. They are essential to stores management. The data content and flows of such systems are needed by just-in-time methods.
We must be aware also that "the records say we have 5 in the warehouse but only three can be found and one of these is damaged".
Pareto (ABC) Analysis
Pareto analysis (a.k.a. ABC analysis or 80/20 rule) can be used to classify stock groups. Stock items are ranked in descending order of usage value, and plotted on a cumulative frequency curve. it is common to find that 20% of items account for 80 % of usage value, the next 30% has 15% of value. The final 50% have 5% of value.
ABC or Pareto analysis points the way to where control efforts are best
directed. Judgment is needed on critical inventory items or security matters
that Pareto analysis in itself does not reveal.
Monitoring Stock Turn and Coverage
Stock-out ratio
- we can compare the % of demand actually satisfied with the defined service
level e.g. service level was 98.5%. Actual availability was 97.9%
Stock turn and coverage
These are relevant to holding costs and use of capital employed. Monitoring
individual stock items will identify fast/slow movers and, depending on the
industry, we can evaluate
stock turn (annual usage / average stockholding)
or coverage (stockholding x 52 weeks / annual usage).
As use by value for an item is annual rate of use (units) x cost/unit, this gives the total amount of £ turnover for each stock item.
Retailers are interested in a high stock turn (a small, continuously replenished stock of fast moving items). A stock turn of 13 means than total stock turns over every four weeks. If £100,000 is tied up in stock - this roughly means sales (not profit) of £1.3 million. This stock turn may be inadequate for some retailers as it may be a measure of the quality of the buying decisions - we have bought slow moving items. For a car showroom a stock turn of 6 means that the average stock on the car lot changes every 2 months. Of course, the car dealer is interested in which types of car do not turn over at all! Thus retailers undertake Pareto analysis routinely to compare turnover of items.
Inventory Control Systems
As demand and lead times are variable, we can either
Fixed quantity systems (Re-order levels)
Using EOQ, fixed systems initiate replenishment orders when stock falls below a pre-determined (re-order) level. Re-order level is calculated as mean demand during the mean lead time, plus the safety stock. As a rough indicator, half the mean lead time usage can be taken as the safety stock (RoL = I.5DL).
Two-bin replenishment system
Imagine two equally sized bins (bays, pallets or similar) used for storage in the warehouse or at the workstation storage point. The ROL be thus be seen visually. With the first bin empty, a new full bin is "called" to arrive before the second bin is exhausted. The call is rotated. With proper rotation system is efficient (little paperwork). In a computerised environment the bins/pallets themselves can be bar coded and their movement/position and batch numbers of bin components can be traced.
Stock records
A two bin system works is suited to components needing to be issued in large quantities and where the bin size and hence ROL can be checked simply. With many stock items this is inappropriate. More detailed control over issues is needed hence a stock record system showing receipts/issues and balance is required. Paper or computer records require time to check stock against reorder levels. There may be differences between the physical or actual stock and the book stock. "The record says we have 5 in the warehouse but I could only find three and one of these was damaged". Computerised systems enable replenishment orders to be raised as soon as stock falls below a reorder level.
In a supermarket, the record for each stock item is decremented as each sale is logged at the checkout. With computer interconnectivity, the regional warehouse receives the store's replenishment needs and makes up a replenishment package for next day delivery. Periodic stock checks to count the stock physically enable the store to feed in adjustment figures to reconcile physical against book stock. Thus stock losses can be accounted for.
Such systems assist with demand forecasting. Up-to-date demand figures feed in to reorder level and order quantity calculations.
Fixed time/order cycle systems
Annual requirements for low value, low bulk items can be estimated and ordered in a routine re-order cycle.
We may need to set a maximum stock level (average demand + safety stock). At the routine re-order time current stock can be subtracted from the maximum to give the order quantity (frequency of ordering could be based on EOQ).
Safety stock must accommodate unexpected increases in demand and the risk of stock-out situation. Compare this to a re-order level system where the risk is limited only to variations in demand in the lead-time period. For a fixed time, re-order cycle system the time at risk is re-order lead time plus the re-order cycle time. Calculation of the maximum stock level formula gives a higher level of safety stock.
Comparing Responsiveness as demand changes
Re-order level approach
- average stock levels stay more or less the same and are less responsive to
changes in demand. There is a risk of stock outs with unexpected rising demand
but outstanding re-supply orders can be chased.
Re-order cycle systems
- rising demand can exhaust stocks with no outstanding orders in the pipeline.
Which System?
Of the systems (annual demand, two-bin, re-order cycle, re-order level) none are universally versatile. Many organisations operate a hybrid. Choosing between fixed quantity or fixed time approaches depends on risking unexpected movement in demand against the costs of administering convenient, scheduled replenishment. The safety stock penalty of fixed re-order cycle methods worsens as stock usage value and demand variability rise. Generally fixed time systems suit stock with stable/predictable demand patterns and low usage values.
Risk and security.
Most cost benefits arise from attention to stock items of highest usage value where most costs lie (some lower value/usage items may be critical also e.g. key spares). Theft is always a risk even for bricks and JCB's stored on company building sites. Accurate stock records assist with security monitoring (detecting the fit) and control. A two-bin or annual demand system offers little security for high value, important, difficult to supervise items.
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