Inventory systems provide companies with the ability to track the supplies and raw materials needed to build product to meet customer demand. The accuracy of the inventory system affects purchasing, planning and production departments in the organization. The planning department uses the inventory data to create a production schedule to meet customer demand. Accurate inventory records allow the purchasing department to make an accurate assessment of lead times for purchasing materials for production and to ensure the production department has the materials and supplies available to build customer product.
Employee errors can cause inaccuracies in the inventory records, which can cause purchasing to fail to purchase materials or to acquire an excessive amount of inventory. The employees responsible for transacting materials or work orders must have the training necessary to update the inventory system accurately. In addition, employees responsible for inventory management, such as cycle counters and inventory management specialists, must receive training in the specific inventory system used in the organization.
Stock outs are shortages in inventory that can result from inaccurate records or a poor forecasting in the inventory system. The purchasing department must have accurate trigger points that determine when to make material purchases. Stock outs can result in product delays to customers.
Excess inventory results in additional costs to the organization in storage costs and funds tied up in unused stock. When companies do not use inventory quickly after purchase, the business begins to lose money on the materials. In the event any of the material is defective, it can take much longer for the organization to discover the problem.
An inventory system must not only store quantity information, but it must also provide details of its location in the building. Misplaced inventory results in wasted time as workers search for lost materials. Time delays can result in late deliveries to customers as well.
Lack of Optimization
The inventory system must collect sufficient data to assist purchasing and planning to forecast future supply needs. A well-optimized inventory system can provide the company with information on quantities used in production as well as scrap and waste information. This data can help purchasing determine an accurate inventory level for production materials.
- askDeb.com; Common Inventory Management Problems; Doug Brinlee
- Masao Nakamura, Sadao Sakakibara and Roger Schroeder. "Adoption of Just-in-Time Manufacturing Methods at U.S.- and Japanese-Owned Plants: Some Empirical Evidence," pages 230-231. IEEE Transactions on Engineering Management, 1988.
- Electronic Code of Federal Regulations. "Regulation S-X, 17 CFR Part 210: Sec. 210.5-02 Balance sheets." Accessed Aug. 1, 2020.
Luanne Kelchner works out of Daytona Beach, Florida and has been freelance writing full time since 2008. Her ghostwriting work has covered a variety of topics but mainly focuses on health and home improvement articles. Kelchner has a degree from Southern New Hampshire University in English language and literature.