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An inventory control system is a process for managing and locating objects or

materials. In common usage, the term may also refer to just the software
components.

Modern inventory control systems often rely upon barcodes and RFID tags to
provide automatic identification of inventory objects. In an academic
study performed at Wal-Mart, RFID reduced Out of Stocks by 30 percent for
products selling between 0.1 and 15 units a day. Inventory objects could include
any kind of physical asset: merchandise, consumables, fixed assets, circulating
tools, library books, or capital equipment. To record a n inventory transaction, the
system uses a barcode scanner or RFID reader to automatically identify the
inventory object, and then collects additional information from the operators via
fixed terminals (workstations), or mobile computers.

Applications
An inventory control system may be used to automate a sales order fulfillment
process. Such a system contains a list of order to be filled, and then prompts
workers to pick the necessary items, and provides them with packaging and
shipping information.

An inventory system also manages in and outwards material of hardware .

Real-time inventory control systems may use wireless, mobile terminals to record
inventory transactions at the moment they occur. A wireless LAN transmits the
transaction information to a central AVALON.

Physical inventory counting and cycle counting are features of many inventory
control systems which can enhance the organization.

Inventory control (also known as inventory management) refers to the

systems and strategies businesses use to ensure that they have adequate
supplies of raw materials for production and finished goods for shipment to
customers, while also minimizing their inventory carrying costs. Storing excess
inventory is costly, because the space and financial resources invested in the
goods can often be put to better use elsewhere. At the same time, however,
inadequate inventory stores can result in costly production shutdowns or delays in
filling customer orders. Inventory control systems help companies to find the
delicate balance betwe en too little and too much inventory.

"It is nearly impossible to overemphasize the importance of keeping inventory

levels under control," Ronald Pachura wrote in an article for cc



"Whether the problems incurred are caused by carrying too little or too
much inventory, manufacturers need to become aware that inventory control is not
just a materials management or warehouse department issue. The purchasing,
receiving, engineering, manufacturing, and accounting departments all contribute
to the accuracy of the inventory methods and records."

Pachura created a checklist to aid companies in assessing their inventory controls.

He recommended that business managers examine the accuracy and
effectiveness of their: bills of materials (BOM); receiving policies; engineering
changes; scrap reporting; vendor lead times; reorder triggers; and warehouse
locator systems. The inventory turnover ratio is a tool that can help companies to
determine whether they are producing and carrying too much inventory. The basic
measure of inventory turnover is defined as cost of goods sold divided by average
inventory on hand. But Pachura noted that managers may gain more information
by segmenting average inventory into raw materials, work in process inventory,
and finished goods, and then computing a separate turnover figure for each.
Comparing these figures often reveals opportunities for improving inventory
controls.

 
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In today's business environment, even many smaller businesses have

come to rely on computerized inventory management systems. Certainly, there
are plenty of small retail outlets, manufacturers, and other businesses that still rely
on manual means of inventory tracking. Indeed, for some businesses ²such as
convenience stores, shoe stores, or nurseries²the purchase of an electronic
inventory tracking system might constitute a wasteful use of financial resources.
But for firms operating in industries that feature high volume turnover of raw
materials and/or finished pro -ducts, computerized tracking systems have emerged
as a key component of business strategies aimed at increasing productivity and
maintaining competitiveness. Moreover, the recent development of
powerful computerprograms capable of addressing a wide variety of record -
keeping needs²including inventory management ²in one integrated system have
also contributed to the growing popularity of electronic inventory control options.

Given such developments, it is little wonder that business experts

commonly cite inventory management as a vital element that can spell the
difference between success and failure in today's keenly competitive business
world. Writing in  

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Godwin Udo
described telecommunications technology as a critical organizational asset that
can help a company realize important competitive gains in the area of inventory
management. According to Udo, companies that make good use of this
technology are far better equipped to succeed than those who rely on outdated or
unwieldy methods of inventory control.

Automation can draidatically affect all phases of inventory management,

including counting and monitoring of inventory items; recording and retrieval of
item storage locations; recording changes to inventory; and anticipating inventor y
needs, including inventory handling requirements. This is true even of stand -alone
systems that are not integrated with other areas of the business. But many
analysts indicate that productivity ²and hence profitability²gains that are
garnered through use of automated systems can be increased when a business
integrates its inventory control systems with other systems, such
as accounting and sales, to better manage inventory levels.

According to Dennis Eskow in 

business executives are "increasingly

integrating financial data, such as accounts receivable, with sales information that
includes customer histories. The goal: to control inventory quarter to quarter, so it
doesn't come back to bite the bottom line. Key components of an integrated
system are general ledger, electronic data interchange database connectivity,
and connections to a range of vertical business applications." David Cahn, a
director of product strategy for business applications at a firm in New York,
confirmed this view in an interview with Eskow: "What drives business is
optimization of working capital. The amount of control you have on inventory
equals the optimization of the capital. That's why it 's so important to integrate the
inventory data with everything else."

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In the late 1990s many businesses were investing heavily in integrated

order and inventory systems designed to keep inventories at a minimum and
replenish stock quickly. But as Eskow noted, business owners have a variety of
system integration options from which to choose, based on their needs and
financial liquidity. "Integrated inventory systems may range in platform and
complexity," he noted.

At the same time that these integrated systems have increased in

popularity, business observers have suggested that "stand -alone" systems are
falling into disfavor. Tom Andel and Daniel A. Kind, for instance, cited a study by
the International Mass Retail Association in Transportation and Distribution:
"The
study concludes that stand alone Warehouse Management System (WMS)
packages acquired today to perform individual functions will probably be
abandoned in just a few years because they do not integrate we ll with other
systems. Systems investments must be considered in context of future systems
objectives."

Another development of which business vendors should be aware is a

recent trend wherein powerful retailers ask their suppliers to implement vendor -
managed inventory systems. These arrangements place the responsibility for
inventory management squarely on the shoulders of the vendors. Under such an
agreement, the vendors obtain warehouse or point -of-sale information from the
retailer and use that informati on to make inventory restocking decisions.

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The move toward automation in inventory management naturally has moved into
the warehouse as well. Citing various warehousing experts, Sarah Bergin
contended in     

  
magazine that "the key to getting
productivity gains from inventory management « is placing real-time intelligent
information processing in the warehouse. This empowers employees to take
actions that achieve immediate results. Real-time processing in the warehouse
uses combinations of hardware, including material handling and data collection
technologies. But according to these executives, the intelligent part of the system
is sophisticated software which automates and controls all aspects of warehouse
operations."

Another important component of good inventory management is creation and

maintenance of a sensible, effective warehousing design. A well -organized, user-
friendly warehouse layout can be of enormous benefit to business owners,
especially if they are involved in processing large volumes of goods and materials.
Conversely, an inefficient warehouse system can cost businesses dearly in terms
of efficiency, customer service, and, ultimately, profitability.

Transportation and Distribution magazine cited several steps that businesses

using warehouse storage systems can take to help ensure that they get the most
out of their facilities. It recommended that companies utilize the following tools:

` Stock locator database: "The stock locator database required for proactive
decision making will be an adjunct of the inventory file in a state -of-the-art
space management system. A running record will be maintained of the
stock number, lot number, and number of pallet loads in each storage
location. Grid coordinates of the reserve area, including individual rack tier
positions, must therefore be established, and the pallet load capacity of all
storage locations must be incorporated into the database."
` Grid coordinate numbering system: The warehouse numberin g system
should be developed in conjunction with the storage layout, and should be
user-friendly so that workers can quickly locate currently stocked items and
open storage spaces alike.
` Communication systems: Again, this can be a valuable investment if the
business's warehouse requirements are significant. Such facilities often
utilize forklift machinery that can be used more effectively if their operators
are not required to periodically return to a central assignment area. Current
technology, however, makes it possible for the warehouse computer
 system to interact with terminal displays on the forklifts themselves. "Task
assignment can then be made by visual display or printout, and task
completion can be confirmed by scanning, keyboard entry, or voice
recognition," observed     

  

` Maximization of storage capacity: Warehouses that adhere to rigid "storage

by incoming lot size" storage arrangements do not always make the best
use of their space. Instead, businesses should settle on a strategy that
eases traffic congestion and reduces problems associated with ongoing
turnover in inventory.

 
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Some companies choose to outsource their warehouse functions. "This

allows a company that isn't as confident in running their own warehousing
operations to concentrate on their core business and let the experts worry about
keeping track of their inventory," wrote Bergin. "There are third party services
available for managing warehouse operations. SonicA ir, for one, provides
companies with an analysis of products and spare parts, evaluations of their time
sensitivity, and current installations and locations of vendor's distribution centers."
Inventory control systems such as the one utilized by SonicAir, said Bergin,
provide businesses with the ability to do real -time updating of inventory, cross-
docking and dispatch, verification, and up -to-the-minute tracking of inventory item
location. Such systems are also capable of providing "a strategic stocking ana lysis
which looks at the customer's equipment locations to determine which strategic
stocking locations should be used, the expected transit time, and projected fill
rate," added Bergin. Of course, businesses weighing whether to outsource such a
key component of their operation need to consider the expense of such a course
of action, as well as their feelings about relinquishing that level of control.

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The ABC inventory system more accurately monitors faster -moving inventory.

Most companies find their inventory falls under the 20 -80 rule. Twenty percent of
their inventory accounts for 80 percent of all sales. This creates a need to more
accurately monitor the faster-moving items. The ABC inventory system was
designed specifically for this purpose.

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An ABC inventory system breaks down your inventory based on movement. The
fastest-moving items are classified as 'A' items; the next tier of inventory is
classified as 'B' items; and the slowest-moving items are classified as 'C' items.
With the 20-80 rule, the top 20 percent of your inventory items is placed in the 'A'
category. The remaining inventory is divided into moderate -moving items and the
very slow-moving items.

 !"
When you establish an ABC inventory system, you are committing to monitoring
the fastest-moving items more than the slower-moving items. Your cycle count
system will count a specific amount of inventory on a monthly basis. As a general
rule, all 'A' items are counted monthly to ensu re maximum inventory accuracy. 'B'
items are counted a minimum of semi-annually, while slow-moving items are
counted annually.

#
While the standard ABC inventory system works based on the volume of
movement, some companies intermix other criteria to monitor specific inventory
items. You can classify extremely high-cost inventory items as 'A' items, so you
can monitor them more closely. Likewise, you can classify items with extremely
long lead times as 'A' items to help prevent ordering del ays.

The ABC inventory control method determines the importance of inventory items
based on usage, sales or costs criteria. This inventory control method provides
companies the ability to give individual stock keeping units (SKUs) different levels
of inventory control based on the SKUs relative importance. Companies perform a
Pareto analysis to determine ABC item classifications. The ABC inventory method
offers advantages over non -classification methods in the areas of cost -control,
SKU level management and order fulfillment.

!
Utilizing the ABC inventory method gives a company more control over the
inventory it stores. A company that uses annual costs of goods sold (COGS) as its
basis for the ABC classification method stocks less of the "A" class ite ms
(identified as having higher annual COGS) and stocks more of the "B" and C"
class items (identified as having lower annual COGS). On the other hand, a
company that uses annual usage as its basis for classification stocks more of the
"A" class items because of their higher usage and less of the lower use "C" class
items. Stocking a better mix of the right inventory allows a company to control
over-supply and under-supply of important SKUs.

$$
Because the ABC inventory method makes use of Pareto's law (the basic 80/20
rule), companies can focus on containing the cost of the 20% of items that make
up 80% of a companies annual spend. Once a company has determined which
items fall into each ABC category it can establish cost-reduction initiatives at the
SKU level. These initiatives can include reducing the SKU's lead -time, reducing
safety-stock levels and negotiating reduced pricing with suppliers. Additionally,
even without implementing cost-savings initiatives a company experiences cost-
reductions from eliminating excess stock for less important, but sometimes -costly
SKUs.
c%&'$ 
One of the greatest benefits comes from the improvement in customer service
levels and order fulfillment. ABC analysis provides a company with information to
stock the right-mix of inventory. If a company uses customer demand as its basis
for analysis, it ends up stocking a better mix of the items customers require. When
a company has the right inventory at the right time it reduces backorders and
unfilled orders. This has a positive impact on customer service and gives a
competitive advantage to the company that uses this methodology.

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ABC inventory extends to warehouse management has well. Companies utilizing
ABC analysis in the warehouse give priority space to faster moving SKUs. This
allows workers to rapidly find, pick and pack fast moving items. Implementing ABC
inventory management in the warehouse reduces labor cost and increases
productivity.

The Advantages of the ABC System of Inventory

Control
The ABC inventory control method determines the importance of inventory items
based on usage, sales or costs criteria. This inventory control method provides
companies the ability to give individual stock keeping units (SKUs) different levels
of inventory control based on the SKUs relative importance. Companies perform a
Pareto analysis to determine ABC item classifications. The ABC inventory method
offers advantages over non -classification methods in the areas of cost -control,
SKU level management and order fulfillment.

!

Utilizing the ABC inventory method gives a company more control over the
inventory it stores. A company that uses annual costs of goods sold (COGS) as its
basis for the ABC classification method stocks less of the "A" class items
(identified as having higher annual COGS) and stocks more of the "B" and C"
class items (identified as having lower annual COGS). On the other hand, a
company that uses annual usage as its basis for classification stocks more of the
"A" class items because of their higher usage and less of the lower use "C" class
items. Stocking a better mix of the right inventory allows a company to control
over-supply and under-supply of important SKUs.

$$

Because the ABC inventory method makes use of Pareto's law (the basic 80/20
rule), companies can focus on containing the cost of the 20% of items that make
up 80% of a companies annual spend. Once a company has determined which
items fall into each ABC category it can establish cost-reduction initiatives at the
SKU level. These initiatives can include reducing the SKU's lead -time, reducing
safety-stock levels and negotiating reduced pricing with suppliers. Additionally,
even without implementing cost-savings initiatives a company experiences cost-
reductions from eliminating excess stock for less important, but sometimes -costly
SKUs.
c%&'$ 

One of the greatest benefits comes from the improvement in customer service
levels and order fulfillment. ABC analysis provides a company with in formation to
stock the right-mix of inventory. If a company uses customer demand as its basis
for analysis, it ends up stocking a better mix of the items customers require. When
a company has the right inventory at the right time it reduces backorders and
unfilled orders. This has a positive impact on customer service and gives a
competitive advantage to the company that uses this methodology.

ð#"$

ABC inventory extends to warehouse management has well. Companies utilizing

ABC analysis in the warehouse give priority space to faster moving SKUs. This
allows workers to rapidly find, pick and pack fast moving items. Implementing ABC
inventory management in the warehouse reduces labor cost and increases
productivity
Î"$((% (Îc ) is a production strategy that strives to improve a
business' return on investment by reducing in-process inventory and associated
carrying costs. Just In Time production method is also called the Toyota
Production System. To meet JIT objectives, the process rel ies on signals or
Kanban between different points in the process, which tell production when to
make the next part. Kanban are usually 'tickets' but can be simple visual signals,
such as the presence or absence of a part on a shelf. Implemented correctly, JIT
focuses on continuous improvement and can improve a manufacturing
organization's return on investment, quality, and efficiency. To achieve continuous
improvement key areas of focus could be flow, emplo yee involvement and quality.
Quick notice that stock depletion requires personnel to order new stock is critical
to the inventory reduction at the center of JIT. This saves warehouse space and
costs. However, the complete mechanism for making this work is often
misunderstood.
For instance, its effective application cannot be independent of other key
components of a lean manufacturing system or it can "...end up with the opposite
of the desired result. In recent years manufacturers have continued to try to hone
forecasting methods (such as applying a trailing 13 week average as a better
predictor for JIT planning, [2] however some research demonstrates that basing JIT
on the presumption of stability is inherently flawed. [3]