Inventory Management

Inventory Management
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Inventory Management
In business, all functions are both interrelated and interconnected to one another. There are essential aspects of logistics, inventory, and supply chain that form the ultimate backbone of a business to function. Inventory management functions are extremely significant in marketing managers and finance controllers. Inventory management is relevant for business irrespective of the type of service or product being sold. Inventory management is defined as a designed process that is a task with the obligation of ensuring a firm is well equipped with products it requires in keeping costs as low as possible (Muller, 2011). Defining a good and bad inventory lies within the context of a firm’s supply chain, internal controls, and cost of goods. In this paper, an in-depth analysis of two companies namely Dell and Apple will be done on the inventory management system they use. The two firms manage inventory as an aspect of their daily operation.
Apple
Apple is a firm that leads in innovation and design. A handful of people knows that the way Apple handles its day-to-day activities is the reason behind its success. Research firm Gartner ranks Apple as the firm with the best supply chain in 2010 to 2013. Apple was founded by Steve Jobs, Ronald Wayne, and Steve Wozniak in 1976. The Apple Company whose main offices are in Cupertino, California specializes in creating and selling mobile or personal computers, consumer electronics, and software.

Apple’s chief commodities form an essential percentage of stock made up of iPod media player, iPhone Smartphone, Mac line computers, and associated computer programs and software such as iOS operation system, iTune media browser, and iWork.
Dell
Dell is a multinational company with a remarkable history. Initiated in 1984 by a Michael Dell, the company’s main offices are situated in Rock Round, Texas. It is currently rated as the world’s third-largest personal computer vendor behind HP and Lenovo. The firm’s line of production entails computers, desktops, notebook laptops, network servers, and storage products.
Type of Inventory
Dell and Apple assemble their various products in assembling plants located in different parts of the globe. These firms obtain various physical spare parts and software purchased from suppliers, which they assemble to form the product that they offer to the customers. The current type of inventory they use is work in progress. Work in progress falls under the manufacturing inventory management. The inventory management system comprises of various products obtained from suppliers such as computer parts and software. The parts and software purchase are unfinished products which are assembled in various plants to form the finished product for clients.
Characteristics
Work in progress inventory management has different characteristics. One of the significant features is that it has a short shelf life due to the rapid change in nature of technology. Both companies keep their inventory for a short time because they try to mitigate the risk of being in possession of obsolete parts and software. Another underlying characteristic is the big nature of the products as the two firms have a huge customer base. A Large number of customers calls for modern systems with high-end techniques that assist in managing large inventory (Muller, 2011). The inventory is also characterized by being in complete or in an incomplete state. An example is that both raw materials and finished goods are all acquired in a complete nature while work in progress inventory is obtained in an incomplete state.
Roles of Inventory in Performance
Inventory plays a significant function in the general operations and profitability of a company. It consists of assets that have economic value sold to clients as a finished good. Inventory planner or manager strives to ensure that there is optimum level on inventory continuously. Holding excess inventory is an indicator of operation inefficiency in a way that the firm does not meet the requirement or standard of the clients. Stock build-up culminates from fall in stock demand. It might also be caused by inaccurate demand forecast (Holweg & Helo, 2014). Dell and Apple often carry out their yearly demand forecast at the end of every financial year. Demand forecast assists the manager in projecting the amount of inventory a firm needs in meeting the required selling while adapting to the needs of the company. Overstocking causes increase in stock holding while understocking forces clients to seek refuge in other competitors. These causes market share and sales drops causing an adverse impact on the firm’s performance. When there is no optimum inventory, firms barely meet client’s satisfaction.
Types of Layout and their Importance
Apple inventory strategy banned manufacturers and opted for contract manufacturers. It adopted JIT (Just In Time) inventory management layout. In this layout, Apple only held what they needed. The contract offered required suppliers who are flexible to short deadline notices. Dell has processing plants situated throughout the globe. It provides approximately 1.6 million product configurations for its various products that formulate a huge percentage of the inventory. They have a list of suppliers consisting of Nvidia for graphics chips, Sony for monitors, and Intel for the microprocessor (Bowersox, Closs & Cooper, 2002). Dell clients can place orders online. Dell manager processes orders by clients, then send orders to an assembly point for building, testing, and packaging. Dell then does the shipping of the products within the stipulated timeframe of five days. Layouts are essential because they help firms to access raw materials efficiently. They also minimize wastage by supplementing the understanding of operation limitation and management of supplier network.
A comparison of the two company’s organization and layout plan indicates that Dell more client friendly. Dell has suppliers’ storage centers in their processing facilities, enabling them to have full control over the inventory needed in the facilities. Because of good supplier relationship in the two firms, they have a constant flow of raw materials. Apple is however limited in its operation and distribution of its inventory due to prior contact agreements entered regarding manufacturing strategy. It is perilous because the vendor can terminate the contract and instead sell to the final customers.
Metrics of Evaluating Supply Chain Performance
The most ultimate metric for measuring the above factor in inventory management is termed as inventory turnover. The metrics measure the number of times a firm’s inventory optimum balance can be turned.
The formula used is denoted as
Turnover = Cost of Goods/ Average Inventory
This means that the higher an inventory turnover ratio, the more efficient a firm becomes because it can sell the stock fast. It is also a sign of operation efficiency and positive customer feedback. The other metrics is the day of inventory which attempts to measure the period taken to clear the current inventory. Lower numbers indicate a correct demand forecast (Holweg & Helo, 2014). The formula is denoted as
Day of Inventory= Number of Days in Period/ Inventory Turnover
There is a need for both companies to invest in demand pattern and trend performance so as to have accurate demand forecast.
Suggestions for Improving Inventory Management
Lean synchronization is the most efficient way of improving inventory management without interfering with a firm’s daily operation. It involves carrying out audits in all inventory processes to eliminate unnecessary wastage.
References
Bowersox, D. J., Closs, D. J., & Cooper, M. B. (2002). Supply chain logistics management (Vol. 2). New York, NY: McGraw-Hill.
Muller, M. (2011). Essentials of Inventory Management. New York: AMACOM Div American Mgmt Assn, 2011
Holweg, M., & Helo, P. (2014). Defining value chain architectures: Linking strategic value creation to operational supply chain design. International Journal of Production Economics, 147, 230-238.