Running Head: INVENTORY CONTROL Abstract

Maintaining awareness and control over the inventory of any business is never an easy thing to achieve, and proper administration of supply chains is the largest and most direct aspect of controlling the flow of inventory. All companies that do business specifically in goods benefit intrinsically from well-maintained and controlled lines of supply, though the purpose is to pass the advantages of such down to the end consumer in convenience and cost-effectiveness. Many things affect the stability of chains of supply and thereby the flow of inventory, not the least of which is consumer demand. Other potential factors are concepts such as the rise of new entrants into the same or a related industry, the capacity for alternative materials, the states of the markets, as well as those such as Cluster Theory, and the continuing and increasing marching of technology. The monitoring and control of supply chains is ever changing, and successful companies are constantly looking for ways to improve and take advantage of new knowledge and capabilities.

INVENTORY CONTROL Supply Chain Management as a Method of Inventory Control Proper management of supply chains depends upon correct planning, sourcing,

production, and delivery of all associated materiel in the network; and this is entirely sensible as the very definition of it implies coordination of activities across the whole of the company to the benefit of the end consumer (Noreen, Brewer, Garrison, 2011, p. 9). Such coordination is mandatory among all departments and facilities in an organization, and when properly followed results in adequate or better measures of inventory. This paper will address various acronyms associated with the flow of inventory, such as JIT, TQM, and ECR; also growth in technology and coping with the supply and demand of providers and consumers alike. Cluster Theory and Shared Knowledge The basic components of supply chain management are plan, source, produce, deliver, and returns, according to Bozarth, Blackhurst, and Handfield (2007) these components can be broken down to calling operations management to focus on the concept of globalization. Globalization requires that organizations focus on culture and technology, and the best partners for upstream and downstream systems, regardless of location. One theory that many authors have discussed is the Cluster Theory. This is when organizations within a given industry join in geographic concentrations along a particular field. These clusters can be any size and serve large or small, specialized markets, depending upon the level of cooperation between members. Because of these "clusters" knowledge becomes shared and assisted in addressing key components of the supply chain and controlling inventory to meet end consumer needs. According to Porter, the cluster theory also produces five forces that need addresses when dealing with supply chains, and inventory management (Mullins, Walker, 2010).

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These five areas are threat of new entrants, threat of substitute products or services, bargaining power of customers, the bargaining power of the suppliers, and rivalry among competing firms. New Entrants Thomas& Maurice (2011) discuss how new entrants can be a threat to any industry, As in perfectly competitive markets, the absence of entry barriers ensures that any economic profit will eventually be bid away by new entrants" (p. 28). However, this diminishes in the cluster theory if all members are acting honorably, as well as organizations making their products more difficult to copy, which includes the rapidity and degree of changes in the industry due to technological advancements. Other ways to stave off competition from new entrants is through exclusive alliances with distribution channels, and the prodigious use of internet. Substitute Products or Services There is a moderate threat of substitute products, in the era of technology most new entrants will attempt to sell more technologically advanced items. Depending upon the industry and more specifically the business may not have threats of this type at all. Bargaining Power of Consumers The power of the consumer is extensive. High levels of consumer satisfaction can go a long way in maintaining a target market. Again, this will fluctuate depending upon the industry. There is also the demand from the consumers, which pushes the need to manage inventory levels as adequately as possible. If a firm does not immediately have what the consumer wants, they will attempt to find a viable substitute item/service elsewhere. Bargaining Power of Suppliers Suppliers depend upon the industry grouping, and it can be difficult to maintain one sole supplier for all the needs of an organization. In the organization I work for, we have suppliers

INVENTORY CONTROL arrive periodically and maintain the quantities of certain components required for our target production. This reduces the time that managers spend analyzing the needs of the production

floor, and gives the supplier more control of the situation, which in turn frees up management to focus on other areas of concern. Rivalry among Competing Firms Rivalry can be high when dealing with the technological aspects. Every firm wants to be improved and more advanced than all the rest. However, being constantly competitive leads to higher fixed costs, and constant changes in products and the prices of products. This could lead to a fall in consumer support. When organizations decide to work together within these geographical clusters, they are able to better overcome these specific obstacles and learn from one another how to manage their supply chain. The distribution of, and compensation for, any stresses on supply chains occurs with greater speed and ease within such clusters. These clusters have shown to provide "improved integration into customer requirements, and lower total costs" (Bozarth, Blackhurst, & Handfield, 2007, p. 3). Components of Supply Chain Management These are tough times for competition, with great drive for each industry to outperform the others, and they need to ensure that the best possible system is in place to meet the needs of the end user but also carefully manage their operations and supply chains (Prasetyo, Luong, Lee, 2010, p. 1). The ideal approach is for every department to function as part of a cooperative unit to meet the entire organizations needs. Prasetyo et al, also indicates "important operational issue to deal with in the context of a supply chain system is inventory management since an efficient and effective material flow management is a critical phase to succeed in global

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competition" (2010, p.1). A supply chain encompasses all the activities and functions involved in production and delivering a product or service from the supplier to the consumer and each department requires efficient communication to create the proper movement of materials and inventory (Khan, Al-Mushayt, Alam, & Ahmad, 2010). This is where the areas of planning, sourcing, production, delivery of product, and returns become things to address both individually and wholly. Planning Definitive goals set by an organization are the basis of all planning. Having set goals allows the organization to put strategic plans in place and develop those to achieve their goals. Khan et al (2010, p. 405) discusses Fuzzy Logic. This theory works with abstract processes, such as IF-THEN scenarios as opposed to the simple true-false values of a situation. The use of Fuzzy Logic allows flexibility in decision making, without rewriting the initial plan. Sourcing Sourcing identifies suppliers and their schedules for deliveries and restocking of incoming goods. It also identifies the additional services that suppliers may provide while maintaining supplies. The supplier is a key component, and the goal is to ensure there is sufficient stock to address production needs and not fall behind in finished products, which would delay the delivery of demanded products to consumers. Production This is exactly as it implies. Production activities are all those related to the production of the product, or service the organization is offering. This extends to include offsite, and outsourcing production, in part or in whole at other locations. This outsourcing of production can prove cost effective if approached properly.

INVENTORY CONTROL Analyzing the savings of specific production techniques can pass the savings to the consumer. This prevents the price from becoming so high that consumers may wander to another supplier, and prevents prices that drop too low and reduces or eliminates the profit for the organization. Again, the Fuzzy Logic comes into play to find a suitable pricing for the

product according to "inventory level, the market demand and the time into consideration" (Khan et al (2010, p. 406). Controlling inventory levels is no small matter, from a financial standpoint, it can become extremely costly, since excess inventory still costs firms money to maintain, and of course appears on the balance sheet until sold. So the prime objective is to keep inventories on the lowest possible end of the spectrum to reduce this consumption of money. Delivery Organizations need to guarantee that once they have addressed the issue of maintaining the proper amount of raw materials to provide production enough to meet consumer demands that then meet the need of the finished products being shipped to consumers in a timely manner. This can present a challenge to finished good suppliers; the changing demand of the consumer. Organizations need to "simultaneously maintain a minimal component inventory in order to reduce the daily storage costs and also the possibility of being left with redundant stock if customer demands change" (Khan et al (2010, p. 406). Methods of Maintaining Inventory The objectives of inventory minimization are accomplished in a number of manners, generally with modern inventory management processes. When these processes are utilized effectively, and all parts, and materials that are purchased, processed, stored are tracked and regularly accounted for can assist in improving financial outcomes for the organizations. Having a sophisticated tracking system alone does not improve the process unless the organization

INVENTORY CONTROL knows how to use the information that the system provides. An example of these types of processes can be found in the company I am employed by. Schneider Electric, in Lincoln, Nebraska, utilizes a four-step process to monitor inventory. We use a cycle-count process in which a set percentage of inventories are counted each month, the percentage is based on the number of times we count inventory annually;

annually we close production and count whatever is remaining on the floor. Our monthly cycle counts do not interrupt any production activities. Our organization has implemented a Kanban system over the last year. This is the process of using containers for production control, along with colored cards for the various departments, and other visual cues such as a stop light type system to push the production goals. We also more effective movement of materials to the various stations on the production floor, we have also implemented the use of what we refer to as the L'il Train. This is type of truck that follows a specific path through the plant, with "cars" filled with materials, tools, and other items that each station may need to assist in the production efforts. Not only does this limit the raw materials used, it aides in the effectiveness of the employees but reducing the time spent away from their machines in order to restock with raw materials. These are just some examples of the efforts put forth by many organizations to reduce the delayed materials, and the problems associated with overstocking of inventory. Just-In-Time Inventory This particular method is partnered with the Lean Thinking Model (Appendix A). There are five steps in the lean thinking model, and JIT is a process of the fourth step. JIT is a pull method which keeps inventories low and produce and distribute products in a timely manner as demanded by consumers. According to Noreen, Brewer, and Garrison, " work takes place 'just in

INVENTORY CONTROL time' in the sense that raw materials are received by each manufacturing cell just in time to go into production, manufactured parts are completed just in time to be assembled into products,

and products are completed jut in time to be shipped to customer" (p. 9). However, this method ignores aspects such as the availability of raw materials and the possibility that they will not arrive when needed such as a reduced availability of resources. There may also be transportation issues, and of course tariffs or taxes that halt the processes along the way. Total Quality Management Technological revolution of the 1980s and 1990s, has led the way for global consumers, and now quality embedded in business as well as quantity. This created the idea of total quality management or (TQM) to describe quality efforts. This focus on quality is focused on consumer satisfaction, and leads to teamwork throughout an organization resulting in not only the improved quality, but also additional cost reduction, and time reductions. Organizations wish to reduce the time it takes to bring new products to the marketplace, which results in a competitive edge over others who may take longer. "If two companies can provide the same product at the same price and quality, but one can deliver it four weeks earlier than the other, the quicker company will invariably get the sale" (Stevenson, 2009, p. 38). Conclusion In order for organizations to grow and sustain their growth and power, supply chain management partnered with inventory monitoring is essential for survival. This paper has shown there are several respectable ideas tailored to meet the supply chain demands of any organization, however, it has also been pointed out that a hands on approach partnered with any premade plan is more likely to provide sustainable benefits. With consumers becoming more demanding in their prerequisite of products/services from the suppliers, the structure of a

INVENTORY CONTROL proficient and well coordinated supply-chain has proven to be the most important aspect for meeting everyone's needs. Appropriate management of supply chains depends synchronized groups all working toward a common goal, this goal can be achieved through coordinated planning, sourcing, production, and delivery activities across the whole of the company to the benefit of the end

consumer, as well as the organization. Such coordination is mandatory among all departments and facilities in an organization, and when properly followed results in cost reduction, and increased profits, and a following of worthy consumers.

INVENTORY CONTROL References Bozarth, Blackhurst, & Handfield. (2007). Following the Thread: Industry Cluster Theory, the New England Cotton Textiles Industry, and Implications for Future Supply Chain Research. Production and Operations Management, 16(1), 154-157. Retrieved November 17 2011, from ABI/INFORM Global. (Document ID: 1284186981).

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How to Improve Inventory Management Control. Retrieved from http://www.ehow.com/how_6763803_improve-inventory-management-control.html

Khan, M., Al-Mushayt, O., Alam, J., & Ahmad, J.. (2010). Intelligent Supply Chain Management. Journal of Software Engineering and Applications, 3(4), 404-408. Retrieved November 15, 2011, from ProQuest Computing. (Document ID: 2057503961).

Mullins, J. W., Walker, Jr., O. C. (2010). Marketing management: A strategic decision making approach (7th ed.). Boston: McGraw-Hill Irwin. ISBN: 9780073381169.

Noreen, E. W., Brewer, P. B., Garrison R. H. (2011). Managerial accounting for managers (2nd ed.). New York, NY: McGraw Hill. ISBN: 978-0-07-352713-0.

Prasetyo, H., Luong, L., & Lee, S.. (2010). Integrated Vendor-Buyer Production and Inventory Policy: A Critical Review. International Journal of Business and Management Science, 3(2), 215-230. Retrieved November 15, 2011, from ABI/INFORM Global. (Document ID: 2460241931).

INVENTORY CONTROL Stevenson, W.J. (2009). Operations management (10th ed). New York : McGraw Hill/Irwin. ISBN: 9780077284091.

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Thomas, C. & Maurice, S. (2011). Managerial economics: Foundations of business analysis and strategy (10th ed.). New York: McGraw-Hill

INVENTORY CONTROL Appendix A

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Noreen, E. W., Brewer, P. B., Garrison R. H. (2011).