Explanation of Inventory Control and EOQ
Any business requires effective management of resources to be profitable. Inventory control is referred to as the exact process of maintaining a business’s stock level. It implies all the items, raw materials, manufactured goods, and semi-finished products that are present in the production cycle. The primary purpose of inventory control is to find the balance between resources stored and resources that are to be sold. It enables to prevent shortages, overstock, and other demand and quantity-related difficulties.
Simultaneously, EOQs, or in other words, “Economic order quantity,” is the specific business model attributed to inventory management. It takes into consideration an “ideal” order quantity of certain resources that a company should purchase to minimize inventory costs. This cost-effective quantity would negate holding, shortage, and order expenses.
Overview of Data
With respect to the impact of the heart institute volumes, there is a particular tendency that may impact the overall success of the organization. Thus, pacemaker technology development, and simultaneous spread of pacemaker use, result in the increase in lifespan and influence projections of future life expectancy. In the past, the popularity of pacemakers was not high, making it possible to keep minimal volumes of inventory in storage areas. Currently, the use of pacemakers grows exponentially, causing the necessity to have huge amounts of resources, to avoid shortages and loss of selling opportunities. In one generation, the lifespan would rise significantly, and most older individuals would have pacemakers. Therefore, it would be vital to define the needed quantity of pacemakers to provide the aging generation with them. The success of the organization would depend on how rationally inventory management is built. It means how effectively the company used the opportunity to sell more pacemakers and how accurately determined tendencies for the projected selling rates to fall.
Options for Inventory ordering, Other Products to Consider, and Quantities to Order
Options for inventory ordering are often called “inventory management techniques.” They intended for different situations in the business environment. Just-in-time inventory is the strategy for holding as little stock as possible, negating costs and risks associated with a large amount of resources keeping. ABS analysis aims to identify the most profitable inventory and classify stocks into different tiers. Dropshipping, prevalent among online markets strategy, outsources all aspects of stock managing. Bulk shipment, which assumes that buying in bulk and further storing is cheaper. Consignment, or allowing a wholesaler to provide retailers with goods without taking the payment upfront. Cross-docking or immediate reloading without keeping inventory. Finally, cycle counting enables to effectively manage inventory by counting a small amount of stock on a specific day.
Basically, alternative stocking should be considered when a business model or type of inventory is favorable. For example, it may be useful to order high-cost but not space-consuming inventory to keep on a company’s own storage areas, while large amounts of cheaper inventory retailers are willing to hold can be approached via a consignment model.
To define quantities to order, the EOQ formula can be used. It assumes the constant demand, ordering, and holding costs, which can be taken as average values for past periods, or, better, projected values. Demand in units is doubled and multiplied by order cost. The value obtained is divided by holding costs, and the square root is taken. The obtained value is the number of units to keep in storage areas.
Inventory Ordering Systems
Inventory ordering systems also referred to as inventory control systems, They are the types of software offering multiple functions for managing stocks. There are two key digital solutions, the first of which is the perpetual inventory system. It is designed to continually update inventory records, enabling real-time monitoring of additions and subtractions. Perpetual inventory system works perfectly with a database of inventory quantities and bin locations updated in real-time using barcode scanners. Thus this system is good for real-time monitoring of quantities. At the same time, it has several cons, the first of which is the need to operate it manually. Also, the system requires specialized equipment and typically has a high cost of implementation. Also, this system does not work appropriately when some items are lost or stolen because it impacts inventory records making counts not match actual quantities.
The other system is the periodic inventory system, which does not track inventory on a daily basis, but rather considers beginning and ending inventory levels, valid for a certain period. To track inventory, physical inventory counts are used. When the physical inventory is complete, the inventory account may be adjusted to match the counts. This system is easier to maintain and implement than the perpetual inventory one. However, physical inventory counts are time-consuming and highly dependent on the attentiveness of labor. This system is also more vulnerable to errors and frauds.
Other Inventory Control Products to Consider
The two above-mentioned systems may be useful for managing distinct types of stock within the different business environments or making the system more suitable to other business models. Besides them, the possible switches between the control systems are other products that may be considered. Thus, a barcode inventory system can be integrated into inventory ordering one to facilitate physical counts, enabling more accurate records. Additionally, a radio frequency identification inventory (RFID) system may be useful to find some expensive inventory. RFID tags can be used in the environment with a lot of metal or liquids and can be tracked in a range of approximately 300 feet. This system also provides accuracy in counting and keeping inventory records.
Leadership
With respect to leaders’ responsibilities in addressing the identified inventory recommendations, there are several duties they should fulfill. The first is to determine the tendencies in ordering inventory and selling goods. It is vital to correlate ordering, holding, and selling and detect any issues. It is also vital to project potential sales, so the most appropriate quantities might be chosen. Then, the stocks to keep should be assessed. The information collected together should be approached further on the stage of choosing the most appropriate option for inventory ordering and keeping. Finally, the optimal system for inventory control should be established so it fully complies with inventory recommendations detected on the primary stages of inventory issues analysis.
The leaders to address issues related to inventory are marketing managers, holding information for past, current, and projected sales, head of the marketing sector, head of the logistics sector, and, if necessary, head of acquisition.
Consequences and Implications
In the case leaders do not address inventory needs, it is most likely that the inventory management system would not be cost-effective. It would result in delays, shortages, avoidable expenses. Thus, to make sure that inventory control is effective and is suitable to a particular type of stock held on a constant basis, to particular business situations, and to a particular business model, inventory recommendations should be taken into consideration.
In the case quantities of inventory were not purchased in accordance with the EOQ formula, the implications are the following. Delays, shortages, avoidable expenses, and non-cost effective management of inventory overall. It is also possible that labor would not be capable of physically counting excessive amounts of stocks.
In opposite, having inventory control have positive implications. Among them are better control over records, more accurate counts, real-time monitoring, if needed, prevention of frauds and losses. The negative implications for inventory control depend on the type of system and have been discussed earlier.
Impact of Inventory Control
With respect to the impact of efficient inventory control on the organization’s effectiveness, there are the following positive outcomes. Physical counts and record maintenance become less time-consuming; thus, productivity increases. Risks of fraud and losses are reduced; thus, more effective resource management is ensured, and potential shortages or delays are prevented. A company becomes more profitable due to not holding excessive stocks, and customers become more loyal due to always receiving their purchases in time.
Presentations of Findings
From the calculations presented, the following conclusions can be made. Annual purchase cost equals $14,000, deriving from annual demand and purchase cost per pacemaker. At the same time, annual holding cost and annual setup cost equal $12,250 and $10,500, respectively. Setup cost is attributed to the specificity of the product, which requires to be installed by respective professionals. Assuming annual demand is 400, and ordering cost equals 175, EOQ equals 26.458 units. Or, as it is well-known that a number of items must be whole, it is more like 27 units that need to be held in a storage area at any time. Thus, considering that a product is comparatively expensive and amounts are not substantial, it is still possible to approach stocks by physical counts, enhanced with RFID tags on each pacemaker.
References
Dye, C. Y. (2020). Optimal joint dynamic pricing, advertising and inventory control model for perishable items with psychic stock effect. European Journal of Operational Research, 283(2), 576-587. Web.
Jackson, I., Tolujevs, J., & Kegenbekov, Z. (2020). Review of Inventory Control Models: A Classification Based on Methods of Obtaining Optimal Control Parameters. Transport and Telecommunication, 21(3), 191-202. Web.
Wang, S., & Ye, B. (2018). A comparison between just-in-time and economic order quantity models with carbon emissions. Journal of Cleaner Production, 187, 662-671. Web.