Introduction
The vast majority of Consolidated Electric’s customers are electrical contractors, as the company is primarily engaged in the wholesale distribution of electronic goods to the electrical industry. The company Consolidated Electrics is in the position to wish to write up an inventory management system that helps to handle more than 20,000 line items (Alamgir, 2019). The management system should be powerful enough to identify the correct amount of inventory during peak and off-peak sales periods. A technique for managing inventories that guarantees sufficient stocks on hand until the arrival of the next delivery necessitates determining an appropriate amount of buffer stock. Economic Order Quantity (EOQ) is a method for determining the optimal order size to minimize total holding and ordering costs (Alamgir, 2019). Since the holding cost is 28% of the order value and the ordering cost is $4.36, stock-outs lead to recurring orders, which incurs a hefty financial burden.
Discussion
Consolidated Electric Ltd. is among the most important wholesale provider of electrical devices and supplies. Inventory management is crucial to the company because of the nature of the business. This aspect of the company’s operations is impacted by the degree to which customers are autonomous in their decision-making and other external market factors. Consolidated Electric uses manual systems, also known as classic Cardex systems (Alamgir, 2019). With these systems, every transaction is logged in terms of the units that are received and those that are issued. The targeted records are evaluated regularly by a variety of purchasing agents. These purchasing agents then use order points and the quantity currently being stored to make orders for restocking the inventory.
However, this is accomplished by drawing from previous experience and consulting with industry experts. This results in reordering the predetermined quantities for each part of the inventory, a one-month supply for products with a high price tag and a three-month supply for products with a lower price tag. Therefore, the available stock is kept tabs on through the computer systems, which also record each order placed and any receipts or other issues (Cholodowicz & Orlowski, 2018). Although a new method for computing each reorder point has been established and formulated, a lack of good equations hinders the development of the method and its implementation across the entire company.
Since it will make it possible for the company to meet the requirements of each customer while simultaneously lowering expenses and raising profits, a flawless management system for inventory control will be suited for the company in question. The system is made up of both hardware and software, which denotes that it is made up of various technologies, methods, and procedures that assist in managing and monitoring various types of inventory, such as raw materials, finished products, or work in progress (Cholodowicz & Orlowski, 2018). Manual, perpetual, or periodic inventory control systems are all possible; as a result, these systems have a variety of components, including receipt, monitoring, storage turnover, and reordering.
Optimizing inventory always involves maintaining a particular inventory level, which lowers the risk of experiencing a situation in which you are out of stock and lowers the costs associated with storing the inventory. The ‘P-System,’ which stands for ‘periodic,’ and the ‘Q-System,’ which stands for ‘quantitative,’ will be developed as two traditional inventory control frameworks so that they may be effectively controlled (Perpetual). Inventory levels are counted and analyzed at predetermined intervals, making up what is known as a periodic review system (Marc Morenza-Cinos, 2019). In addition, the system places every order for a subsequent reorder quantity under the currently targeted inventory level (DIL).
As it relates to Consolidated Electric, the following is a computation that can be made:
Current Inventory Level=C
Maximum Quantity=M
Order Quantity (Q)=M –C
M= (Demand Rate∗
Review Period)+(Demand Rate∗Time)+Safety Stock
Given this, the Q-System is regarded as continuous, and as a result, it sustains a continual progression of inventory and sales levels. Once the value has reached the current level, a system like this is called an automatic inventory system. This system keeps accurate records of the quantity of storage space available, and other reorder quantities (Alamgir, 2019). Following the calculation of the ordering and holding costs, a reorder quantity for the system is determined. The situation will be as follows for Consolidated Electric:
Ordering costs= $4.36
Carrying cost=28%
Thus, let;
Demand/day=10
Lead time=10
Safety stock=10
Review time=10
MaximumOrderQuantity=210units (As computed for theP−systems)
If there are 50 units in inventory, the number that has to be ordered is (210 – 50), equal to 160 units.
P-system will be vital to the company in determining the demand rate of the client, computing the quantity that was ordered, and determining the lead time. In addition, the equations can be utilized to circumvent issues with stock-outs and fulfill the requests of customers. Orders for various products coming from various suppliers will be entirely consolidated into a single purchase order, which will help reduce the amount of money spent on acquiring and transporting the goods (Phindile & Charles, 2017). However, the mechanism only allows a limited amount of control over the movement of the inventory. In contrast, the Q-system offers quantity discounts once there are substantial and sufficient orders. This approach also results in less secure stockpiles and lower holding costs (Ndlala et al., 2017). However, one of the drawbacks of the entire system is that it consumes a lot of time because there will be a greater need for additional personnel to record the transaction; this will be the case unless it is accompanied by a bar-code system, an RFID, and various other pieces of real-time data gathering equipment.
Describe how the system you have designed will help the company meet customer-service and cost objectives
A reliable inventory control system is crucial to meeting operational requirements and keeping business as usual. It is a method of arranging stockpiles so that nothing gets lost or stolen, so quantities and circulation can be closely monitored. Forecasting is seen as an input function for targeted strategies, planned actions, and overarching business goals, and proper inventory management and control may help make that happen. The proposed perpetual system is suggested for stock control since it requires stock information to be synchronized regularly. The Q-system instantly updates after receiving an order, allowing for better sales tracking and inventory management (Ignaciuk, 2017). However, relying on one of these systems is time-consuming, risky, and can lead to lost money or unrecorded transactions.
The overall system’s inventory is inflated or understated, reducing the accuracy rate. As a result, it is suggested that real-time data acquisition tools are used more extensively, or stock safety measures are tightened. Because of its status as an auto-identification technology, RFID is a prime candidate for use in real-time data delivery. RFID allows for a greater quantity of tags to be identified at certain intervals, unlike traditional bar codes, so it is a good option that does not require a line of sight. Second, RFID fields have been set up within the warehouse’s storage units; as the inventory moves through them, readers read and record the information on each item’s tag, streamlining the process and preventing mistakes (Ndlala et al., 2017)). Integrating radio frequency identification with the perpetual system improves the reliability of stock counts. The primary reason is that RFID-generated automated inventory changes will be created based on Q-system-recorded incoming and outgoing inventory.
To better meet the needs of their customers, the method helps reduce unnecessary stockpiles or surpluses. Lack of stock means fewer cancelled orders and fewer lost sales while getting rid of too much stuff saves money on storage fees and helps keep landfills from filling up. Despite this, the system lessens the need for a large workforce, cutting labor costs and the initial cash outlay necessary to cover human-caused mistakes (Ignaciuk, 2017). The deployment of autonomous inventory robots can greatly reduce the likelihood of inventory inaccessibility and, as a result, provide real-time inventory visibility using RFID technology, which can also be utilized to automate the stock monitoring process. Further, this method would allow for tracking and control over stock levels, increasing firm credibility with customers and reducing losses from theft.
Conclusion
Consolidated Electric must keep track of a vast quantity of similar line items, each of which has its demand, lead time, and associated costs and benefits. Since certain products are more lucrative than others, Consolidated Electric needs a system of inventory management that will help it determine which products are in demand and which are not. Complex formulas are discussed and calculated in an exhibit to determine the quantity and timing of inventory orders.
References
Alamgir, M. (2019). Perpetual inventory system. Advantages and disadvantages of perpetual inventory system. Web.
Cholodowicz, E., & Orlowski, P. (2018). Impact of control system structure and performance of inventory goods flow system with long-variable delay. Elektronika ir Elektrotechnika, 24(1), 11-16.
Ignaciuk, P. (2017). Base-stock distributed inventory management in continuous-review logistic systems—Control system perspective. In 2017 22nd International Conference on Methods and Models in Automation and Robotics (MMAR) (pp. 1027-1032). IEEE.
Morenza-Cinos, M., Casamayor-Pujol, V. and Pous, R. (2019), Stock visibility for retail using an RFID robot. International Journal of Physical Distribution & Logistics Management, 49(10), 1020-1042. Web.
Ndlala, P., Mbohwa, C., & Sobiyi, K. (2017). The application inventory control systems in warehouse. In Proceedings of the International Conference on Industrial Engineering and Operations Management, (pp. 77-80). Web.