Inventory Management
Introduction
Throughout its operations, ABC faced the challenge of stock-outs in certain inventory. This refers to circumstances when the company would run out of important inventory, thereby turning the buyers away when they needed certain products. This problem was mostly witnessed among the inventory that would later be classified as under category A. Initially, ABC did not have a system of setting preference as to which products to be closely monitored or to be given priority over others. Commodities under A proved to flow easily. Simply put, their demand was overpowering the supply. With the past inventory management methods, it was impossible for the company to monitor such commodities. The effect of this was that customers were forced to try and get these commodities from the competitors of ABC (Schawel & Billing, 2014). In business, this is a risk act, because it gives the competitors an opportunity to poach one’s clients. ABC had to act swiftly. The approach it embraced saw goods under category A receive close monitoring. These goods were given special preference since they played the biggest role in the company’s generation of working capital.
Working capital challenges
For any business to succeed, working capital plays a major role. Because of poor inventory management, ABC always found itself in this situation. Its early practice entailed stocking inventory uniformly, without regards as to the consumer trends. This saw some of the inventory run short quickly, while other inventories stayed on the shelves for such a long time that they lost their value (ABC Analysis or ABC Classification, n.d). In order to boost the working capital, the company needed to take severe measures and address the problem. This led to the company revamping the way it handled and managed its inventory. The effects were highly desirable.
Why ABC was keen to improve its inventory management
Various reasons underpin the move by ABC to improve its management of inventory. Prior to the move to do so, the company faced a lot of challenges on its management system. By then, the company employed a holistic approach, where all inventories were acquired equally, without regard to the consumer trends. Apart from some inventory running short in a quick manner, the company faced the challenge in that there were other goods that overstayed in the shelves. This had to change.
There is no doubt that the move by the company to make use of this inventory management method was wise. The results reveal improved performance from the part of the organization when compared to past records. Several factors contributed to this. First, category A inventory is critical in the day to day running of a firm. It shapes the availability of working capital in the company. It forms the basis of the business. By giving such inventory close supervision, the company ensures that the inventory never runs out of stock. The company ensures that such inventory in stock is adequate to sustain the business. It also becomes possible for the company to forecast and determine how much of inventory classified under B and C should be acquired at a time. This mechanism ensures that there is a positive balance between the available inventory and its demand. The results are always positive.
References
Schawel, C., & Billing, F. (2014). ABC-Analyse. Top 100 Management Tools, 12-14. doi:10.1007/978-3-8349-4691-1_4
