After learning about the classification of inventory and the corresponding advantages and disadvantages of various inventory categories, it is necessary to continue to understand the role and disadvantages of inventory. Is inventory the "root of all evil" in the factory? Is it possible to achieve "zero inventory"?
The role of inventory.
Different factories and different industries will have different understandings of the role of inventory, and generally speaking, the role of inventory is as follows:
Balance between supply and demandInventory can help factories solve the problem of mismatch between supply and demand timing, i.e., when demand fluctuates, inventory can act as a buffer, so that the production process is not affected by short-term demand changes, while allowing factories to provide sufficient ** during peak demand periods.
Risk preventionA certain amount of inventory can prevent risks, including uncertainties (such as delayed deliveries, transportation delays, etc.), demand uncertainties (such as market fluctuations, seasonal demand changes), and inherent variability in the production process (such as machine failures, quality control issues).
Guaranteed Production:Inventory ensures the continuity of raw materials, parts, etc., avoids production line downtime or shutdown due to shortages, and maintains the stability and continuity of production. Especially in the case of a large number of self-made parts in some factories, due to the existence of a certain inventory of semi-finished products, it can ensure that each processing process is more independent and more economical in the production process.
Economy Lot Size:By purchasing in bulk and holding inventory, factories are able to achieve economies of scale and reduce costs, such as unit purchase costs, transportation costs, and the transaction costs associated with frequent small batch orders. At the same time, there is no need to worry about procurement and production for short-term needs (small batches).
Strategic Stocking:For example, the price of certain materials (strategic materials) may be purchased by the manager of the factory**, and in order to avoid increasing costs, the quantity will be higher than the normal inventory of the usual.
Disadvantages of inventory.
Maintaining a certain level of inventory plays a very important role in the operation of the factory. However, when the inventory can not be effectively controlled, it will also have a very big impact on the factory, which is one of the reasons why some factories feel that the financial report is good, but it is actually very painful, that is, the inventory is reflected as an asset in the report, not cash.
If the inventory is not well controlled, there will be the following risks, especially the last one.
Funds occupied:
Inventory goods require the factory to invest a large amount of money for procurement and holding, and these funds are locked in the inventory and cannot be used for other investment or business activities, increasing the financial cost of the factory.
Storage costs:
Storing inventory requires warehouse space, personnel management, and corresponding maintenance costs (such as rent, electricity, insurance, labor costs, etc.), and as inventory increases, storage costs also rise.
Depreciation and risk of loss of goods:
Many products have expiration dates, and expiration can lead to reduced value or even scrap, resulting in stagnant inventory. In addition, there is a risk of damage or theft due to improper storage of inventory items.
Risk of changes in market demand:
Market demand may change over time, and if inventory products cannot be sold in a timely manner, especially in fast-iterating fields such as electronics and fashion industries, it is easy to lead to product obsolescence and inventory overstock. For example, the life cycle of the mobile phone industry is generally only 6 months, and consumers buy new instead of old, and the inventory backlog leads to huge risks for mobile phone manufacturers.
Cover up management issues
Excessive inventory may mask the problems in the factory's production operations, such as the on-time delivery rate of purchase orders, the rate of achievement of production plans, and the on-time delivery rate of customer orders, which are all done very well. Because these indicators are theoretically easy to achieve as long as the inventory is high enough.
In order to prevent the purchase order from not being delivered on time, the purchase may send the purchase order to the factory in advance, and in order to prevent the order from being paid in full, the inventory of semi-finished products and raw materials should be made a little higher to ensure delivery, etc.
If the inventory is low, these production and operation problems may be immediately exposed, including low production efficiency, product quality problems, production planning problems, and so on.
Control of inventories.
Due to the above shortcomings of inventory, because special attention needs to be paid to the control of inventory in the daily management of PMC, a perfect inventory control system must be established to achieve effective control of inventory. Including but not limited to the following:
Stable production plan, output stable MRP through stable production plan, and control materials.
Reduce manual order issuance, and strictly release the corresponding material requirements according to the requisition of MRP or LRP calculation. Reduce manual requisitions and purchase order placements.
Delivery according to the production plan, production in strict accordance with the production plan, no advance or delay, to achieve efficient turnover of inventory materials.
ERP account inspection, check the incoming and issuing materials of the warehouse, and prevent MRP demand errors caused by inaccurate inventory, resulting in repeated procurement or production tasks.
Regular warehouse material drawing, through regular material drawing, timely discovery and processing of discrepancies, to ensure the authenticity of inventory data, so that the accuracy of the warehouse's account card is improved.
Improve the inventory early warning mechanism, set reasonable inventory upper and lower limits and safety stocks, establish an early warning system, and automatically trigger the first process when the inventory is about to reach a critical value.