Page 129 - DMGT525_MATERIALS_MANAGEMENT

Materials Management

Notes 9.1 Elements of Effective Inventory Control

As a business grows, a software inventory control system becomes necessary for easier retrieval
of information, integrated sales and purchase order processing, and real-time inventory valuation.
The various elements of an effective inventory control system are:
1. Management: Inventory management involves making decisions on the appropriate level
of inventory to keep on hand. Too much inventory can increase storage costs and the
chances of spoilage. However, not having enough inventory might mean losing customers
to competitors. Manufacturing companies often use just-in-time inventory control where
items are ordered only as needed. Businesses use inventory classification, reordering and
minimum levels to manage inventory. Classification groups items according to annual
sales volume with a priority on controlling the inventory levels of high-sales-volume
items. Reordering is done by factoring in the demand and the lead time required to get the
order filled.

Notes Businesses must maintain a minimum inventory level as a buffer to prevent shortages.

2. Security: Security involves alarm systems for securing warehouses and real-time tracking
of inventory items. Radio frequency identification tags, or RFIDs, can be used to track and
protect valuable inventory. RFID tags use radio waves to communicate between embedded
radio frequency transmitter microchips and reading devices that track tagged items and
raise alarms when security has been breached.

Did u know? RFID stands for Radio-Frequency Identification. The acronym refers to small
electronic devices that consist of a small chip and an antenna. The chip typically is capable
of carrying 2,000 bytes of data or less.
3. Quality: Inventory quality control involves tracking batches as well as individual items
so that if something goes wrong managers can trace the defect all the way to the source.

Example: A defective part or an assembly line failure.

!
Caution The inventory should be checked periodically for faults, especially for perishable
items, because one rotting item can damage others in the batch.

Climate-controlled storage systems and automated tracking can also help with inventory
quality control.

Self Assessment

Fill in the blanks:

1. ………………… management involves making decisions on the appropriate level of
inventory to keep on hand.
2. Manufacturing companies often use ………………. inventory control where items are
ordered only as needed.

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