CASE STUDY: JB HIED-FI COMPANY
Inventory Management of the Company
Inventory management remains a key item for JB HIED-FI Company. The current system that is in place has enhanced the management to oversee the movement of product and services without posing a threat to the financial viability of the organization. From the financial information provided, the company has incorporated both the Economic Order Quantity (EOQ) and Just-In Time (JIT) methods of stock valuation. In utilizing these two approaches, the management has realized effectiveness in distribution of its stock. The strategies that the company uses to manage its inventory range from creation of purchase and invoice orders to generation of receipts.
The Company majorly utilizes EOQ to manage inventory in relation to Just-In Time approach. When using EOQ, the Company ensures that it minimizes the total ordering costs and carrying costs for the inventory purchased. Various assumptions are taken by the management including; demand is known and constant; incremental ordering costs are known and constant per order; acquisition cost per unit is constant (Toomey, 2000). Consequently, it is assumed that the entire order is delivered at one time, the carrying costs are known, and constant per unit, and on average, one-half of the order is in stock at any time. Utilizing the above assumptions, the management is able to track the movement of stock in and out of the organization with ease.
Timing of EOQ
The timing of orders under EOQ is usually a crucial consideration as the inventory-reorder point (ROP) would be realized; thereby, minimizing ordering large volume of stock that may become stale. Arriving at ROP, the management analyzes the level of inventory on hand that would trigger the placement of a new order. The length of time between placing an order and receiving the order, the lead time, is also put into consideration (Waters, 2003). The EOQ method of inventory management is precise and offers efficiency in timing of orders.
Just-In Time Inventory Management
Although Just-In Time (JIT) is rarely used by the company, it has been effective due to its philosophy of simplifying the production process by removing non-value added activities. JIT is known to substantially reduce the costs associated with non-value added activities. Though it is cumbersome and time consuming, it ensures that fewer losses are reported in the organization due to obsolescence, theft, and spoilage. As such, no opportunity costs are reported in the case of high inventory and meet the needs of customers. However, there is high risk associated with the inventory shortages which may render the process ineffective in the long-run (Saxena, 2009).
Effectiveness of Inventory Management
Inventory management would be effective if the management liaises with the customers, suppliers, and the stakeholders in providing relevant information. JB HIED-FI Company is focused on this strategy. The company has relied on suppliers to provide them with the supplier-managed inventory in an attempt o ease their operations. In this scenario, the vendor has allowed the company to access its inventory data without any restrictions. The supplier creates purchase orders depending on the need of the distributor. When companies are focused on distribution records, supplier-managed inventory is vital as it reduces errors associated with data entry and effectively administers timing of the company’s purchase orders (Muller, 2011). In addition, the Company utilizes the use of qualified and well-trained inventory control personnel. As inventory management requires clarity and reliability of the information, the use of qualified personnel enables the organizations to manage all the goods and services that are within the organization and those that are in transit. The inventory control personnel also manage returns, perform adjustments, implement new strategies for reporting inventories, and validate receipts of goods.
EOQ method of inventory valuation puts into consideration the effect of lead time. It accurately calculates the time required for the suppliers to deliver the products in order to minimize any shortages in supply. As most of the organizations are concerned with retaining and attracting new customers, JB HIED-FI Company included, provision of goods and services at a regular time ensures that the customers are retained in the organization. Suppliers need to deliver their products at a given time depending on the date in which the order is placed; therefore, minimizing any form of biasness. According to Axsater (2006), the vital way of managing inventory is to determine the reports for lead time and ascertain the time to replenish the Company’s inventory.
Consequently, as the company is growing in size, the size of inventory increases. Possessing a high level of inventory in an organization increases overhead costs and company’s expenses. Therefore, in order to minimize the risks and losses associated with increased level of inventory, the company has managed inventory in that it can order the amount of inventory required when it falls beyond a given limit. Finally, effectiveness in inventory management has been achieved through available of purchase software. The database is designed to accurately monitor the purchase of inventory and track the turnaround times in the organization. As such, complete inventory controls is provided by the database.
Axsater, S. 2006. Inventory Control, London: Springer.
Muller, M. 2011. Essentials of Inventory Management, New York City: Amacom.
Saxena, R.S. 2009. Inventory Management: Controlling in a Fluctuating Demand Environment, New Jersey: Global India Publications.
Toomey, J. 2000. Inventory Management: Principles, Concepts, and Techniques, London: Kluwer Academic Publishers.
Waters, D. 2003. Inventory Control and Management, London: John Wiley & Sons.