Inventory Management
Inventory Management: ABC
There are several possible reasons as to why ABC revamped its inventory management methods. These may include
Past ABC records reveal that stockouts were common phenomena in the operations of the business. Often, the company would run into a shortage of its products. Simply put, the demand for the products would, in certain cases, overpower the supply. This would mean that ABC had no other option, it had to turn away its customers. This is a risk venture. In any business, customers play a significant role. They bring money to the business.
Stockouts bring an undesired impact to the business (Schawel & Billing., 2014). First, they make the business lose money from the missed sales. In addition to this, they threaten the loyalty of the clients. Customers are likely to look for alternatives whenever their main supplier runs out of stock. By revamping the inventory system, ABC would handle this issue amicably. For instance, it would become possible for the company to analyze the available products in stock and make a forecast on as to how long the supplies will last. This is one possible reason as to why ABC revamped its inventory management records.
Issues with working capital
Working capital is a crucial element in any business. A poor inventory management system is likely to affect the enterprise in a negative manner. The revamping of the inventory methods of ABC had this in account before they initiated the process. Acquiring inventory is an expensive venture. The expectations of businessmen are that upon paying the supplier, one would sell the item at a higher price so as to make a profit. Failure to make sales would mean that the item will be lying on the shelves, thereby threatening the working capital. There is a big possibility that ABC wanted to avoid such a situation.
Poor management of inventory may lead to winding up of stock. This means that there will be too much of certain items in the store. This may bring problems and challenges to the business. For instance, lack of making sales may force the entrepreneur to write off the product in question. Perishable items, on the other hand, will become obsolete, leading to losses from the part of the company. In the long-run, this will affect the business. In ABC, there was a need to ensure that proper management of inventory would ensure the business maintained its advantage (Schawel & Billing., 2014).
How inventory management can make business efficient at ABC
There is no doubt that inventory management plays a role in making businesses efficient. This is based on the fact that the management will take a keen interest in the business operations. First, inventory management ensures that the working capital supports the business. Lack of working capital is a hindrance to the continuity of any business. Second, the fact that stockouts are reduced means that the customers will be satisfied. All these have a positive impact on the operations of the business.
Why ABC was keen to improve its inventory management
As already intimated above, improving the inventory management of any business has a number of advantages. In order to streamline its operations, ABC had to improve its inventory management to the current model. Its current model is simple, but effective. First, the firm rates its items as either A, B or C, depending on the existing rules (ABC Analysis or ABC Classification., n.d). According to the company’s management system, goods classified under A are those that have the highest consumption and need close monitoring to ensure they never run out of stock. Goods categorized under B are those that have medium consumption, accounting for around 30 percent of the inventory items. C items have the lowest consumption value, and they account for up to 50 percent of the inventory items.
There is no doubt whatsoever that ABC was wise to improve its inventory management. Success (or lack of it) of the business fully depends on the management decisions that the company makes. A bad decision is bound to have a negative impact on the performance of the business. Better decisions, on the other hand, will have a positive impact. Ever since the inventory management of ABC was reviewed, accountability has been achieved. There has been better monitoring on the performance of different inventory, giving the management an opportunity to prescribe decisions that touch on specific issues. The past inventory management record did not take interest in individual commodities, and decisions were often made without regard to the specific challenges that were experienced. This had led to a number of problems, some of which included loss of customers and mismanagement. As such, it would be wise to argue that the decision to improve the inventory management has been vindicated.
References
Schawel, C., & Billing, F. (2014). ABC-Analyse. Top 100 Management Tools, 12-14. doi:10.1007/978-3-8349-4691-1_4
