Inventory management refers to the process by which a business organization maintains an organized flow of goods in and out of the business enterprise. In so doing the organization team attempts to prevent the inventory becoming high or on the hand going down to levels that can affect the performance of the organization.
According to Watson (p 32) in order to control the inventory management the people involved should zero in on some aspects that will act as a guide to them. The most important aspect regards to time keeping. He says that by keeping the inventory management the managing team is able to establish the amount of time spent in order for a distributor to process what has been ordered and also deliver.
In addition he says that the inventory management helps in determining the period that it has taken for a good delivered in the business to move out having being sold. Therefore bearing this in mind the management team is able to determine with minimal errors when to place an order of a particular commodity and of what quantity.
To add on that he argues that inventory management helps in maintaining of accurate records of what has been delivered and what has been sold. As a result any cases of missing goods or varying figures in the receipts books can be cross checked in order to establish the correct figures. For taxation purposes the inventory management has been argued as adequate in providing the information required.
Types of inventory management
As the business strives to move forward it has to maintain a good inventory management so that it can be known what is required when, and in what quantity. It is as a result of this the management team has an option of choosing from a number of available inventory management.
Today there are four major types of inventory management. They include the material requirements planning, multi echelon inventory optimization, single echelon inventory optimization, and the just in time inventory management system.
Material Requirements Planning (MRP)
According to Howard (p 121) under this type of inventory management the main emphasis is placed on the production schedules so that there is optimization of inventory levels. He argues that material requirement planning demands that inventory should be available in large quantities to ensure that they perform accordingly in the task required of them.
To add on that he states that inventory should be availed in time so that the business organization reduces the amount of money incurred. When using the material requirement planning the main component of it is the Bill of Material.
According to him the Bill of Material is very useful in a business enterprise since it is the one used when it comes to the calculation of time that is needed to acquire raw materials used during the process of production.
Single Echelon Inventory Optimization
Watson (p 23) argues that single echelon inventory optimization is mainly used by the business organization that wants to maintain a single channel for distribution between itself and its clients. Due to its simplicity, he argues that this type of inventory management is used in large numbers by the small and medium business enterprises that have limited inventory channels of distribution.
Multi-Echelon Inventory Optimization
Contrary to the single echelon inventory optimization, this type of inventory management is mainly a reserve of the business enterprises that have many regional centers of distribution and also a number of centers to distribute their products.
Just In Time (JIT)
According to Howard (p 126) this inventory management system is designed in such a way the company or the business organization is able to have a minimum inventory holding costs. He notes that under this system the business organization should only place an order to the supplier after that particular good has been asked for by a customer.
He says that the company in most of the time has in the shelves what they think is the goods asked for by the customers in many incidences. As a result Watson (p 25) argues that the company ensures that their inventory holding costs are low and that way they do not stand a chance of non moving goods within their enterprise.
What are the methods used in Carrefour UAE
Carrefour is a retail chain from France that for over the last 40 years emerged as one of the leading retail outlets all over the world in terms of revenue collected, profit, and the number of staff employed. During that period Carrefour has managed to establish many outlets in different parts of the world particularly in Europe, South America, North Africa, and the Middle East.
Therefore, various scholars have looked at the measure put in place in order to achieve this success that many other retail outlets in different parts of the world have not been able to do. In their discussion one common feature that they all talk about is the use of efficient inventory management in order to control the movement of their stock.
According to Muller (p 232) within the Carrefour business the most used inventory management system is the Just In Time (JIT). As earlier discussed this kind of inventory management system is greatly beneficial to the company because in one way it helps the company not to stock non moving goods which can in the long run play a part in making the company realize a loss.
Under this system the company receives an order of a certain commodity from the client. In response the company places an order from the supplier for that commodity to be delivered.
Once brought to the company, the commodity is taken to the client’s house hold. Using the Just In Time method the company is guaranteed that the goods they have in stock especially the heavy house hold items like fridge, and other electronics goods are bound to be bought because they are in stock because the customers asked for them.
However, other frequently used house hold goods are usually stocked without using the Just In Time inventory system.
In addition to that Institute of Grocery Distribution (p 235) argues that Material Requirements Planning (MRP) is also used in the Carrefour business. They say that when using this inventory management, the company is able to ensure that their orders are processed on time by the suppliers.
Although this is not used most of the time, they argues that it is useful to the company because the stock in business enterprise is closely monitored and therefore appropriate measures put in place to mare sure that no stock runs out without new one being ordered.
As a result of this the clients would always find most of the things that they have come to shop. An example of the goods that may fall under this category of inventory management system is the household goods that are used by many people in their homes such as food stuffs and drinks.
Multi Echelon Inventory Optimization on the other hand is used when it comes to the distribution of goods to the company branches. According to Koontz (p 476) Carrefour is a business enterprise with many outlets being found in various cities I the United Arab Emirates. Such cities include Abu Dhabi, Dubai, and Sharja.
Therefore, to coordinate the activities of these outlets there is need to have a central position from which goods are distributed to the outlets. As a result of this the people working in the distributing centre has to maintain the Multi Echelon Inventory Optimization so that they can easily record and know the amount of stock disbursed to a certain outlet.
Using this method the company is able to maintain a tracking system to know if the goods were taken to their intended destination. He therefore argue that chances of doctoring figures on the way are minimized and this goes a long way in making sure that the company profits continue to grow in leaps and bounds.
Today Carrefour in United Arab Emirates has invested a lot of money in the information technology as well as communication so that they can track their sales and merchandise inventories in the entire branches in the country. In so doing the company has been able to reduce unproductive inventory by a way of letting the outlets manage their own stocks.
Instead of reducing inventory across the board, Carrefour management has used its advanced information technology system to avail many inventories for goods demanded for mostly by the clients. In so doing the company has been able to keep their inventory levels as low as possible.
Furthermore, the company has also been using bar coding and radio frequency technology in managing her inventories. Under this method the goods are directed to the dock from where they are loaded for shipments. The bar coding that they use helps them to pick and receive good inventory control. In addition this system helps in easier counting of the inventories physically.
Advantages of Inventory Management
In any business enterprise whether small or big inventory is very important because it helps the business maintain the required inventory levels to avoid incurring unnecessary costs. Inventory management has a number of advantages that include the following.
Inventory management helps in understanding the demand and supply. Therefore the company avoids stocking too much of unwanted goods or under stocking. This is because maintaining the inventory management helps in establishing the trends of goods movement.
In addition maintaining inventory management helps the company reduce liabilities. Koontz (p 467) says that by looking at the movement of goods out of the shop, the management of the business can know when to buy certain goods and in what quantities to avoid over stocking that may lead to losses.
Therefore by maintaining inventory management chances of stocking unwanted goods are minimized. Other advantage is that it helps the management knows when to make orders of certain goods and also stream line its operations.
Disadvantages of Inventory Management
According to Muller (p 231) inventory management has been noted to have three disadvantages that include the following. At first is the bureaucracy that gives a lee way to the employees to manipulate the available stock in the business. Secondly we have the production problem he says that although the company is able to know the stock available, it is not able to know the quality of the goods they are selling.
In today’s world companies like Carrefour have spread in many parts of the globe as a result of proper planning and efficient management. Therefore, this can be a wake up call to those businesses that has for long been struggling to survive. Maintaining an inventory is paramount in order to identify the movement of goods in and out of the company.
Howard, Elizabeth. Carrefour: a study of a hypermarket and its effect. Avon: Avon County Planning Department, 1999.
Institute of Grocery Distribution. Carrefour: A Strategic Review. Michigan: Institute of Grocery Distribution, 2002.
Koontz. Essentials of management 8E. New York: Tata McGraw Hill Education, 1990.
Muller, Mike. Essentials of inventory management. New York: AMACOM Div American Mgmt Assn, 2003.
Watson, Anthony. Best practice in inventory management. Abington: Elsevier, 2002.