Inventory System Summary QRB/501 Abstract Inventory Systems Summary Introduction Intro Inventory systems are use in many different companies today as a tool to make sure the company strives into success. Inventory systems serve several different functions for businesses; one purpose is promoting the sales function by ensuring that a sufficient amount of product is available for customers. Another purpose is shrinkage control, that is monitoring the frequency of loss, theft, or breakage of products received.
Another very important function of inventory control systems is asset valuation; that is establishing the value of the products on the shelf for tax purposes at the end of the tax year. According to the Small Business Administration, all inventory systems strive to strike a balance between managing costs and the business advantages of a broad selection of goods to offer to customers. All inventory systems, regardless of technology, require some element of visual inventory management.
Point of sale, bar code, or stub control systems will all require manual verification periodically. Inventory Systems Radio frequency identification inventory system is a system considered an IT tool that can meet the needs of both mobility and timeliness is radio frequency identification (RFID). Through radio signals a product tagged with RFID is put in memory until solid. The system has the ability to take into account inventory that becomes low and makes the necessary order to replace the product before the shelf is empty.
With this technology in place it ensures the product will be in the right place at the right time to boost sales and streamline managing inventory. RFID decreased the amount of manual orders and replenished shed the product faster than the normal order process. The EPC electronic product code stores the object products from a worldwide perspective. The data representation capability of a Gen 2 tag is sufficient to provide unique identifiers for all items produced worldwide. The data representation capability of a Gen 2 tag is sufficient to provide unique identifiers for all items produced worldwide.
Some problems with are RFID systems include reader collision, tag collision, signal disruption, system/data security, and consumer privacy. Perpetual inventory is keeping book inventory continuously with the stock that is on hand in real time. Many times when perpetual inventory is use in a store it is often paired with point-of-sale scanning equipment which allows sales to be recorded immediately. It also updates the system when an item is returned by a customer. When these items are recorded it allows the store to the ability to see when it needs to order more inventory and the count of goods sold.
When using this type of inventory there is no need to do a yearend inventory unless there is a discrepancy of the inventory and the records. If this happens a journal entry is made debiting an inventory over and short account crediting the inventory but if the inventory shows more on hand then the inventory is debited over and short is credited. During perpetual inventory transactions the inventory will be accounted for in different ways. The perpetual system shows inventory purchases are debited to inventory during a given transaction.
Freight, purchase discounts, allowances and returns are also debited to inventory transactions. The costs of goods are recorded by the real time of each sale with a debit to cost of goods sold. Physical inventory counts are done at least once a year to account for breakage, errors, theft, ect. Perpetual inventory is also best for business that have large inventory and a high turnover in there company and by using simple calculations to maintain inventory it helps with the lost of inventory and the high turnovers. There are several ways that a bar code can be read.
Some of the ways are scanning by a hand held, scanner that is attached to a computer or cash register, or scanner in the counter top. By scanning the product it allows the company to keep track of inventory and ordering. Each company does have their own system of inventory that they do by scanning. Barcode scanning is in all companies throughout the United States and it helps to control inventory. Not all companies know that by using barcode scanning it help the company grow to bigger sizes. Not all employees like using computers; they ould rather do things the old fashion way. A disadvantage to scanning barcodes is that if the red beams cannot read the barcode then the product will not scanning in right or read at out all. An advantage is that it can help the company control inventory because a person can scan an item to see how of that product is on hand then order that product if it is need. Another advantage to barcode scanning is that it allows the manufacture know which products are being sold the most and allows them to produce more of the product.
Scanning products does not eliminate the need for physical inventory for a company. All scanning does for the company is help them with the quantity of the product on hand. Physical inventory is where the personal counts all products in stock and back stock then compares it to the quantity that company has order throughout the month or quarter. Just in time inventory system is used by companies as an innovative way to cut cost, prevent waste and enhance the value of the business.
Toyota manufacturer uses the Just in time inventory system as a market strategy to get ahead and gain that competitive edge against their American competitors. There are numerous advantages associated with using the Just in Time Inventory system. For instance, Just in Time (JIT) makes production operations more efficient, cost effective and customer responsive. “JIT allows manufacturers to purchase and receive components just before they’re needed on the assembly line, thus relieving manufacturers of the cost and burden of housing and managing idle parts,”(Boyles, Beim, Franko, Bergman, 2005).
However, as with any system there are disadvantages associated with the Just in Time Inventory system (JIT), like “JIT processes can be risky to certain businesses and vulnerable to the supply chain in situations such as labor strikes, interrupted supply lines, market demand fluctuations, stock outs, lack of communication upstream and downstream in the supply chain and unforeseen production interruptions,” (Boyles, Beim, Franko, Bergman, 2005) It was cited that although many companies were successful with implementing the system some were noted as not being that successful.
Visual inventory involves a physical count and examination of the entire inventory. While it is a very low tech method, building in some processes can make the system more practical. All effective inventory systems rely on some type of par level system. Par level is an established minimum reorder level, for instance if the company sells five widgets per day, and it takes 14 days for a restock delivery to arrive, the par level for widgets must be at least 80 widgets. The par level is the minimum point at which a reorder is made.
In a visual inventory system the company establishes the par level for each item and counts down from that point. A tickler control system allows for counts of specific portions of inventory to be counted each day rather than counting the entire inventory in one setting. A tickler control system is particularly valuable for companies that utilize a visual inventory management system. Advantages and Disadvantages Advantages of just in time inventory management systems are as follows: – Monitors time waste Track Inflated Inventories – Reduce unneeded man power and material movement – Eliminates unnecessary processes and cut cost – Provide management with data of non-value adding activities – Price reduction from suppliers due to bargaining power Con of Just In Time Inventory System are as follows: – Employees reluctance with the new system – Implementation and Integration can be costly – Long-Term Commitment
Advantages of perpetual inventory systems are as follows: -Simple calculations are used to maintain inventory -Easy record keeping. The only records needed are the total materials -purchased and the total goods sold. -Time. You only have to do additional work if the records do not match Disadvantages of perpetual inventory systems are as follows: -Cost. The cost is fading fast Conclusion Conclusion References Brown F ; Lin P, JULY 2006. The CPA Journal. Radio Frequency Identification and How to Capitalize on
It. What CPAs Should Know About RFID Technology. http:// www. nysscpa. org/cpajournal/2006/706/essentials/p34. htm Budding, J, Inventory Management, United States Small Business Administration, retrieved May 21, 2010 from http://www. sba. gov/idc/groups/public/documents/sba_homepage/pub_mp22. pdf http://www. bsu. edu/web/scfrazier2/jit/mainpage. htm http://www. academicmind. com/unpublishedpapers/business/operationsmanagement/2005-04-000aaf-just-in-time-inventory-management. html