Inventory Management

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Inventorymanagement is the process where a company oversees and controls thecomponents that that can be used in the production of items orproducts or controlling the quantities of finished goods for sale. Aninventory is an asset tied up in a business as an investment that canbe sold later or can be used in the production of goods and services.A successful inventory management system will enable a company topurchase a product and make it available when needed. Inaccuratecount on inventory can affect sales negatively and even delayshipment past the required date. This small errors on the value of astock can be devastating to a business it also affects the value ofcurrent assets on the financial statement. So inventory managementkeeps one on top of inventory issues.


Hereare two companies that we can analyze their inventory managementsystems these are Apple Inc. and COCA-COLA Company.


AppleInc. is a known for innovation and design, but most people don’tknow the fact that the way it handles it inventory is one of thefactors that led to its success. In the year, 2010 to 2013 Appleranked by Gartner a research firm as a company with the best supplychain management system. Apple deals with the following inventoriessmartphones, laptops, and the tablets. These inventories have a highdepreciation rate to they should not be kept in stock for long. Inthe year 2011, a comparison of the tech companies was made, Appleoutperformed Dell, Motorola, HP and Blackberry basing on theinventory turnover ratio where it shows how many times the inventoryof a company can be replaced and sold over a given period, the higherthe ratio, the better. Apple was doing better in 2011 because it madesure it sold everything it produced for sale e.g. every Ipad2 thatwas produced was sold hence there was no wastage. The plan is thereshould be no unsold inventory.

Accordingto the first quarter of 2014 financial reports the demand for i-phoneand i-pad was the equal or in balance with the inventory level,unlike in the year 2013, where the supply were highly constrained.The materials for manufacturing Apple products are supplied byvarious suppliers who are then shipped to China for assembling, fromChina the products are supplied directly to the consumers via theApple online store. Other channels like the retail store get theproducts from the warehouse located in California. To enable customersatisfaction after the product life cycle, the products are dumped tothe nearest Apple store for recycling. The company reduced the no ofwarehouses and also the inventory was slashed so that the supplierscan compete in supplying quality product and to reduce the costassociated with storing the products. Technology manufacturers canincur a huge cost if a new product hits the market since the value ofthe electronic device will decrease due to competition.Accurateforecasting of sales and with limited inventories is a very importantstrategy in the computer manufacturing industry since electronicproducts can easily be outdated due to innovations. Apple implementeda new strategy where its product are sold the second day after theyare delivered to a shop this enables smooth inventory tracking andlimits errors and inaccuracies associated with inventories henceoperational efficiency.


Mostmanufacturers find it difficult to identify their products with theright customers, quantity, and price to meet the market demands.Supply chain management provides insight and information for anorganization to identify core values. Supply chain management enablesan organization to identify areas that are profitable through costminimization and improvement of customer services.

Coca-Colabecame a multinational company through licensing its bottlers anddistributors. The company realized the importance of managing itsinventories and the cost related. Systems like MRP (MaterialRequirement Planning) and Manufacturing Resource Planning withcomputerized technology have helped Coca-Cola company to track itsinventories appropriately. The decrease in the inventory level suchas the used and new bottles, and the ingredients was as the resultsof good communication when inquiry are necessary this made coca colato realize the benefits of radio frequencies in the long run.

Coca-Colais a company that uses continuous flow manufacturing method where theproducts are highly standardized and continuously fashioned in anautomated way this enables mass production. The inventory ranges frombottled products such as bottled water, Coke, flavored soft drinksand Diet Coke. Given a large variety of output products, continuousflow is the best method of production.

Inventoriescomprise of raw materials and finished goods the cost is determinedby the average cost or FIFO (First in, First Out), Coca-Cola usesmade to the stock method in inventory management. This system worksnicely for it as a manufacturer. This method has enabled easy servicedelivery to clients starting from product availability to reducedcost since Coke delivers in bulk. This is made to stock methoddemands a product line to be specified by the manufacturer.Therefore, the inventory directly meets the customers demand. In caseCoca- Cola Company uses a made to order customer method the rate ofproduct distribution will be low due to increased demand as it hasmany customers.

Coca-Colafound itself in stiff competition from Pepsi Cola, which providedquality products at a very low cost at the same time they weremaintaining customer service. To be more competitive Coca-Cola had toimplement “ Just-in-time (JIT) “ and TQM i.e. Total QualityManagement business strategies so as to improve services delivery,production efficiency, and improved quality product(Michalski, 2008).To enable smooth manufacturing and safety of stock the companystarted seeing the importance of supplier-customer relationship bythe use of Total Quality Management and the Just-in-time. Thesestrategies enabled Coca-Cola to select competent suppliers andallowed them to help in generating more sales by making improvementson the components used in making products delivery improvedquality product design and enable savings.

Metricsto evaluate supply chain management

Themetrics will enable us to understand some of the characteristics ofApple supply chain management

Inventoryturnover this is a measure that determines how much financialresources can be efficiently be utilized to generate sales, thehigher the value, the better. The value is calculated by taking thecost of goods sold divided by the average inventory/ average stock(Chen, Sim, Simchi-Levi, &amp Sun, 2007)

. By comparing the turnover of Apple Inc. and that of coca cola we cansee that Apple if more efficient. This is because Apple is amarketing firm and lacks manufacturing facilities, but Coca-Cola isBottler and a distributor company. So its nature that Coca-Cola hasto maintain a large amount of stock/inventory hence a smallerinventory turnover.

Howmany are the key suppliers the most important thing in supply chainmanagement is the relationship between the key partners i.e. thestrategic suppliers. Apple has few suppliers as compared toCoca-Cola.

Productlife cycle this is the period a product can stay for it to be soldthe longer the period, the better. From research Apple product cantake more than 12 months. When it comes to Coca-Cola product its muchcomplicated to estimate the product life cycle since the demand forCoca-Cola can’t be forecasted since the production techniques arebased on the just in time strategy.

Warehousefacilities in the United States, the cost of transportation takes alarger proportion of the total logistic costs. Since Apple has acentralized store, it is much easier to coordinate its246 stores andcustomers with a well-developed automated chain management system thecompany will be able to manage its operations effectively. Systemslike MRP and Manufacturing resource planning with computerizedtechnology has helped Coca-Cola company to track its inventoriesappropriately(Michalski, 2009)

Waysto improve inventory management


Whenwe talk about Apple, we are reminded of Steve jobs extremeengineering, precision, packaging and quality product. We need amethod that will enable the company to supply the product at thelowest cost as possible. But the problem with tech inventories isthat they become depleted easily due to increase inventions andcompetitions from other products, so the best way to handle this isto reduce the number of suppliers, reduce the number of warehouses toreduce inventory costs. Apple as a company should manufacture itsproducts instead of manufacturing them from China(Michalski, 2008)..This will reduce the time taken in manufacturing, and also it willreduce the shipping cost. And as a company, it will have a directcontact with its customers.

Fromthe discussion above we can see that the best way to succeed insupply chain management is to manage the relationship between thesupplier and the company. Where when developing a new productsupplier should be involved at the initial stages of productdevelopment, there should be close communication between a supplierand manufactures and an evaluation should be carried out on thesupplier performance improvement.


Thisis the world biggest beverage company with branches all over. Thedaily shipments are estimated to be around 400 shipments and athousand delivery points globally.

Internationally,Coca-Cola Company lacked a standard process to manage its transportsector, and it also needs to know more about its freights cost tomake decisions that will enable it to accomplish vision 2020 businessstrategic objectives, such as to decrease inventory and to increasesales volume yearly.

In2009, Oracle Partner MavenWire was brought on the board to help inthe implementation of a fully integrated data management system. Thesolution to the problem was to select a transporter who willcoordinate the supplier and the plant and the customers.

Coca-ColaCompany should adopt a centralized system of inventory management,this will help in consolidation of inventory data by trackingfigures, at hand level up to the expiry date this will enableefficient reordering processes, and it will also help in simultaneoustracking and reduced documentation studies hence there will be anincreased workflow.

Companiesthat are facing stiff competition and with unpredictable economicconditions should adopt business process reengineering (BPR). Thisapproach is designed to minimize waste and increase performance. Toattain this company need to focus on cost minimization and place moreconcern on core values/competencies that will result to futurebenefit (Hua, Cheng, &amp Wang, 2011). An example is the SAP software that was adopted by Coca-Cola thatwill increase efficiency. So there is more room for new inventions tobe made to as to come up with the best system that will fill the gapthat exists. Cost minimization is a strategy that Coca-Cola needs tofulfill yearly to accomplish vision 2020.


Chen,X., Sim, M., Simchi-Levi, D., &amp Sun, P. (2007). Risk aversion ininventory management.&nbspOperationsResearch,&nbsp55(5),828-842.

Hua,G., Cheng, T. C. E., &amp Wang, S. (2011). Managing carbonfootprints in inventory management.&nbspInternationalJournal of Production Economics,132(2),178-185.

Michalski,G. (2008). Corporate inventory management with value maximization inview.&nbspZEMEDELSKAEKONOMIKA-PRAHA-,&nbsp54(5),187.

Michalski,G. (2008). Value-based inventory management.&nbspValue-Based, journal of Economic Forecasting,&nbsp9(1),82-90.

Michalski,G. (2009). Inventory management optimization as part of operationalrisk management.&nbspEconomicComputation and Economic Cybernetics Studies and Research,213-222.

Inventory Management

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Inventoryrefers to all items in a business organization help to support theproduction activity or repair of the plant and are meant to be soldto the market. As such, it is an important resource for theorganization that calls for its management. The day to day activitiesof a business is supported by the inventory and it is important foran organization to ensure that the optimum level of inventory ismaintained to support the production needs. That is where the conceptof inventory management come. Inventory management is more of an artand can be referred to as a science that determine the level, andorganization of inventory items within an organization. Itspecifically addresses the issue of inventory replenishment, cost ofinventory, waiting time, carrying a cost, inventory forecasting,inventory valuation and quality management just to mention but a few.The need to have in place an inventory management system ensure thatordering of inventory, lead time and cost variables all support themajor business objectives which is to maximize profit.

Fora manufacturing business, various inventory types and categories canbe considered. The raw material is the first category of inventoryfound in a manufacturing firm. The raw material is the unprocessedprimary items. They are used as input in the production process. Forexample, limestone is a raw material in the cement production processas is chips and circuit boards in the manufacturing of computers.Work-in-progress is the second category of inventory and representall the items in the manufacturing process that are yet to befinished. They are items that are yet to be worked upon before theyare offered to the market for sale. Goods that are finished but stillhave to be packaged are also categorized as work-in-progressinventory. Finished goods are the third inventory type that amanufacturing firm has to determine. Finished goods are the itemsthat have been completed and are ready to be offered to the marketfor sale. The finished goods can be stored in a waiting area or canbe in organizations shops where it wait for either wholesale orretail purchase. Other inventory categories for manufacturing firmsinclude repair and maintenance items, office su7pply packaging boxesand other operating inventory. This category represents a significantinventory type that support, document and analyze the productionprocess. However, the first three categories are the major inventorycategory held by manufacturing organizations (Tempelmeier,2011).

Manufacturingfirms ensure that throughout the production process, there issufficient inventory level to avoid interruption of the process. Thequality of products manufactured depend on the prior design of theproducts in the process. A lot of reources are advanced in researchand development to lead the process of innovation. This organizationgo to the market and conduct a survey on the needs and preferences ofthe customers. The design of the goods and services should becentered upon the needs of the customers. If possible, thisorganization may develop new products and offer them to the customersto meet the demands of the consumer. Quality check and control areconstantly undertaken and the policies revised to meet the requisitequality level. Cost targets are developed and the inventory purchase,carrying and storage cost are all considered before any inventory ispurchased. Trade discounts and advantages of large scale purchasehave to be considered to lower the cost appropriately. Use of andintegration of information systems in inventory management by theorganizations also help in goods and service design integration.

Inventorymanagement helps in many ways to improve the performance of the firm.Proper management of inventory helps the organization to ensure aconstant supply of materials necessary for production. Sometimes, theproduction process is disrupted due to lack of inventory materials.With efficient management, the materials are availed in time, hence,continued production process. Proper inventory management can alsoreduce the probability of bottlenecks brought about by the poorarrangement of inventory and interruption due to the bad arrangement.Inventory need to be arranged in such a way that it does not disruptmovement and also support access to the materials. This will increasethe rate of production and save a lot of time that could haveotherwise been used in accessing the materials due to poormanagement. Inventory management also supports customer satisfactionin many ways. First, the function supports the actual manufacturingprocess. Manufacturing firms receive an order to supply goods beforethe production. As such, the firm is the constraint to work withinsome time limits. With exemplary inventory management, the productionprocess would go on smoothly as planned and ensure that the demand ofcustomers is fulfilled. Inventory management ensures the quality ofthe goods is maintained or even improved. Customers expect qualityproducts from the firms and as such, the goods need to maintain theexpected quality. Storage of finished goods after production have tosupport the quality levels, hence customer satisfaction (Muller,2011).

Thefirst layout is the product or line layout. This layout involves thearrangement of equipment in the order in which they would be used inthe manufacturing. The layout is appropriate for continued productionwhere the primary material is fed at one end and by the time it exitsthe process, it is a finished product. It is appropriate for highvalue customized products. It ensure few obstacles and save time. Thesecond layout is the functional or the process layout. This layoutrequires different functional units to finish the processing of aparticular part of the product before it goes to the other part. Theproduction requirements for such layout require different processingneeds. The advantage of the layout is that it provide a greatopportunity for flexibility and ensure maximum utilization ofresources. The third layout is the fixed position layout. For thislayout, involved the production of a product when it is in a certainposition. The layout is appropriate for large products that are toodifficult or even impossible to move like ships, planes, and rockets.Lastly, we have the cellular layout this layout involves thearrangement of processing equipment in groups depending on therequirement of various related processing needs. All the layoutdepend on the manufacturing needs and must be designed to support thewhole manufacturing process (Chen&amp Simchi-Levi, 2012).

Supplychain metrics helps organizations to track the performance of thesupply chain. Cycle time and inventory turns are some of the metricsthat can be used to track performance. Inventory turns are sometimesinventory are ordered within a certain period commonly one year. Ithelps manage the cost of ordering and storing inventory and at thesame time maintaining the production effectiveness. Cycle time itspart is the time was taken to manufacture a product from the start tothe end. Understanding the number of time, it takes to replenishinventory can help an organization to make better procurement andcost management. This is because the appropriate time to purchase thesame can be scheduled. The metrics can also help in improving thelevel of the manufacturing process by studying the time taken andremoving all bottlenecks that hinder the process.

Inventorymanagement can be improved by use of an inventory management system.This way, the company can link its inventory needs with thesupplier’s database. The system can also produce timely reports onthe level of inventory and hence prompt procurement of the same. Thesystem is also expected to reduce the cost of inventory managementand valuation. Access to inventory information becomes easier becausethe information system would use either code that are easy to use andinput data. The accountability in inventory is going to be improvedby the new system. As always documentation and recording of what getsin and what leaves a warehouse is basic to the inventory managementfunction. In general, the integration of information system ininventory management is going to improve the effectiveness ofmanagement and significantly reduce the cost. So, the company`s willenjoy many benefits by using inventory management informationsystems. Further due to the importance of the inventory to themanufacturing companies, it is expected that its management is verysupportive of the production process. When that is achieved, theorganization will subsequently be able to concentrate on the corebusiness, which is to manufacture the products.


Chen,X., &amp Simchi-Levi, D. (2012). Pricing and inventory management.TheOxford handbook of pricing management,784-822.

Muller,M. (2011). Essentialsof inventory management.AMACOM Div American Mgmt Assn.

Tempelmeier,H. (2011). Inventorymanagement in supply networks: problems, models, solutions.Norderstedt: Books on Demand.

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