Assessment

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Assessment Title
Assignment 2.

Programme Title:

Logistics.

Course No.:

TLB6301.

Course Title:

Warehouse and Inventory Management.

Student Name:

Fatema Obaid.

Student ID:

201101371.

Tutor:

Hugh McDermott.

Due Date:

30th May 2015.

Date submitted:

30th May 2015.

By submitting this assessment for marking, either electronically or as hard copy, I confirm the following:

This assignment is my own work

Any information used has been properly referenced.
I understand that a copy of my work may be used for moderation.
I have kept a copy of this assignment

Do not write below this line. For Polytechnic use only.

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Contents
Introduction .................................................................................................................................................. 3
Purpose ..................................................................................................................................................... 3
Terms of reference.................................................................................................................................... 3
Method ..................................................................................................................................................... 3
Inventory Management ................................................................................................................................ 4
Goals of Inventory Management .............................................................................................................. 4
Importance of Inventory Management within the supply chain .............................................................. 5
Costs involved in holding and managing inventory ...................................................................................... 6
Inventory Accuracy ....................................................................................................................................... 8
Theories and Methods .............................................................................................................................. 9
Technologies ........................................................................................................................................... 10
Systems ................................................................................................................................................... 11
Additional concepts to achieve effective and efficient Inventory Management ....................................... 12
Importance of Inventory Accuracy to all business ...................................................................................... 13
Conclusion ................................................................................................................................................... 16
References .................................................................................................................................................. 17
Websites ................................................................................................................................................. 17
Sessions ................................................................................................................................................... 18

Introduction
Purpose
The aim of this report is to define inventory management and the importance of it within the supply
chain. Also, it will discuss the theories, technologies and systems used to increase the efficiency of
inventory accuracy. Moreover, the involved costs in holding inventory will be demonstrated and
additional concepts related to increasing the effectiveness of inventory management. Finally, the
importance of inventory accuracy to all business fields will be discussed.

Terms of reference
This report was requested by Mr. Hugh McDermott, Logistic Tutor at Bahrain Polytechnic. It will be
submitted to Mr. McDermott in the 30th of May 2015 as it was requested.

Method
Information in this report will be collected from various resources. General information was taken from
articles in the internet. Critical information and principles was taken from academic journals and
articles; besides some additional concepts and related information was taken from TLB6301 course
sessions and notes.

The inventory of any organization consists of raw materials, work in progress or finished goods that will
be or ready for sale. The inventory is considered as a major asset for any organization and there are
many costs involved in storing, tracking and insuring the inventory (Investopedia, 2015). If inventory was
not managed probably, it will lead to having financial problems in the organization either by having
inventory surplus or shortage. That is why organizations should manage its inventory to ensure the
health of its business.

Inventory Management
Inventory management is defined as the process of monitoring the continuous flow of goods into and
out of a current inventory existing in a warehouse. The procedures of inventory management involves
the way of controlling the inventory from becoming too high or declining to low levels that could effect
on the operations of the organization and threaten the existing of it. Moreover, inventory management
contribute in calculating the costs involved in holding an inventory and control these costs from
different perspectives including the entire value of goods and the taxes generated from having a
cumulative value of inventory (Barcodes inc, 2015).

Goals of Inventory Management

As inventory management is important for the organization to succeed, it has some goals that will
streamline the ordering process and reduce time that is wasted in controlling the inventory. These goals
are:

Keep products safe: inventory management ensure the safety of goods as it have to be store in
safe areas and handled probably to avoid damages. Lost, damaged and broken inventory will
cost organizations as they will suffer from financial losses.

Track sales: inventory management aim to track sales to identify the best sold items, seasonal
items and items which stay long on racks. Data from tracking sales is used to manage the
ordering process.

Ensure accuracy of inventory systems: inventory management systems are used in managing
inventory to ensure that the information is correct; besides, to keep the database of the
inventory updated.

Eliminate additional goods: managing inventory aims to not keep goods in shelves for long as
they take space and cost the organization. So by managing inventory, stock could be push on
sales event, offered in discounted rates or returned.
Source: (Topham, 2015).

So in order to have an effective and efficient inventory management you have to be aware of what
goods are on hand, where they are used and results of the number of finished goods.

Importance of Inventory Management within the supply chain

Organization manage inventory as they know the importance of it on the health of the business.
Inventory management is important to the supply chain as it streamline the ordering process and
reduces the time wasted on controlling inventory. Also, there is significant importance for managing
inventory such as:

Avoid Stock-outs: inventory management is important to avoid stock-out as organization will

lose customer that are going to pay money for your products. Inventory management save the
business from losing customers; by going to your competitors that have ready inventory to sell.
Also, inventory management keep you tracking how much inventory you have and how long you
would supply customers. All that will enable the organization to know when to place a new
order for products to avoid stock-outs.

Avoid overstock risks: inventory Management is important to avoid overstock risks as

organization will suffer from financial issues. Well management will protect the organization
from having products setting in shelves for long as this will increase the ability of not being sold
or organization will have to put them in discounts. Also, it protects products from obsoleting,
getting out of fashion or expires; besides, reduce the costs of storing these goods.

Manage working capital: inventory management protects the organization from having working
capital issues; as where the organization buys products from suppliers in a certain amount of
money with having expectations to sell them in higher price. So inventory management
manages both the employee of the organization and also the working capital to not have cash
tied up.

Minimize inventorys total costs: inventory management help the organization on keeping track
on the carrying costs and ordering costs.

Save time and money: inventory management save time and money as organization will have a
plan on when to move goods to save some trips and costs of moving goods.

High quality customer service: managing inventory help the organization on specifying the time
needed to transport goods to customers and track the transporting process which give the
customers the opportunity to track their shipments.
Source: (Merritt, 2015) (Winn solutions, 2013).

Costs involved in holding and managing inventory

In organizations, inventory is considered as the largest asset and it is also the largest expense item
(Vermorel, 2013). Therefore, businesses have to assess inventory costs as it is critical to the finance of
the business as well as to the management. Inventory costs are categorized under three main categories
which are:

 Ordering costs: this category involves the costs of setting up or replenishing the inventory;
Costs of orders that are acquired every time an order is placed (Chand, 2015). Two groups can
fall under the ordering costs which are:
Ordering process costs: this is a fixed cost and depends on the number of units being
ordered. This group includes the fees of placing an order involving the costs of
communication, accounting and invoice processing. Within large organizations, EDI
system (Electronic Data Interchange) is used and it significantly reduce the costs of
ordering (Vermorel, 2013).
Logistics costs: this is a variable cost and it is associated with transportation and costs of
unloading. Costs in this group vary as it depends on the total volume order (Vermorel,
2013).

Carrying costs: this category involves the costs associated with the flow of inventory; as to
have more or less stock. This category includes the costs of employee, insurance, depreciation
taxes and replacing items; it helps the organization in determining the amount of profit could be
made on the current inventory (Murray, 2015). Four component fall under this category which
are:
Capital costs: it is the largest component in the carrying costs (Murray, 2015). Capital
cost is the amount of money spends on carrying inventory and it includes the
investment, interests and opportunity cost (Vermorel, 2013). This cost depends on the
main market rates (Chand, 2015). Percentages are usually used in describing the capital
costs; as an example, if the capital cost is 40% of the total inventory costs which is
$7000, the capital cost will be $2800.
Cost of storage & handling: this component varies from one organization to another as
it depends on the storing kind (warehouse owned by organization or rented) (Vermorel,
2013). It includes all costs associated with renting or mortgaging the building used to

store the inventory and facility maintenance including electricity, air conditions, heating,
water and insurance (Murray, 2015). Also, costs of moving the inventory into and outoff the warehouse (Chand, 2015). In addition, depreciation is within the costs paid in
this category (Vermorel, 2013).
Cost of inventory services: this component includes the costs of Information
Technology hardware and software such as RFID and bar coding scanners. It also
involves the costs of physical handling in regard to staff wages (Vermorel, 2013).
Moreover, insurance and taxes that are paid to local government are considered under
this category and it varies depending on the goods type (Murray, 2015). In addition,
cycle count and inventory control expenses are associated with this category costs
(Vermorel, 2013).
Costs of inventory risk: this component includes the costs of the risk that goods value
may deteriorate if they stored for a certain period (Vermorel, 2013). This cost is high in
perishables; also as an example, goods could be obsoleted or outdated as new model
exists. Moreover, another inventory risk costs is shrinkage; as goods might be loss
because of administrative errors, pilferage, theft and damage either in transit or storing
(Murray, 2015). In addition, obsolescence is a risk costs as some goods becomes old and
use-by-dates.

Stock-out costs: this category involves the costs of shortage. For example, costs of urgent
shipments and changing to another supplier with faster delivery; this is to not loss customers or
loss the loyalty to the organization (Vermorel, 2013).

Inventory Accuracy
Inventory accuracy is the measurement used to compare between the physical inventory and inventory
records. Inventory accuracy is important as it is an indicator that shows the health and value of the

business and investors and lenders wants to see accurate inventory in balance sheets. Also, it is
important to manage operations and avoid delays, stock-out and overstock (Lee, 2006). Theories,
technologies and systems are used to achieve high inventory accuracy and they differ from one business
to another.

Theories and Methods

Cycle count: it is the process of physically counting part of the organizations inventory
regularly either daily or weekly and then comparing it to the inventory records and placing
correction if needed (Gallina, 2015). Cycle count is used to removes errors (Lee, 2006). This
method has many benefits to the organization as it is less disruptive and could be performed
within the daily operations in the organization. Moreover, this method increases the accuracy of
the inventory system and reduces the number of adjustments needed at the end of the year. In
addition, it reduces the risk costs as goods are counted regularly and their will not be a need for
large number of employee to do the cycle count (Gallina, 2015). This method is useful as it takes
less time and cost and it is occurring while operations are going on. Cycle counting is used
widely in large organization as it is very effective; however, it is not effective for small
companies that hold small inventory as it will increase their costs.
Physical inventory: in this method all operations will be ceased and physical counting will be
placed to every item in the inventory. Besides auditing and recounting at one time; then
numbers will be compared to the inventory records and correction will be placed (Lee, 2006).
This method is used to remove errors. This method is useful as it counts the entire inventory and
ensures the accuracy of records; however, it needs more time, cost and all operation occurring
in the warehouse should be stopped which make it hard to have it on regular basis.

 Process improvement: in this method, transaction procedures are examined to identify

failures in system; then changes are placed to reduce the possibility of errors (Strategosinc,
2015). This method is used to prevent new errors from occurring (Lee, 2006).
Transaction reduction: another method used to prevent new errors is the transaction
reduction (Lee, 2006). This method aim to minimize the number of transactions as it will lead to
having fewer errors (Strategosinc, 2015). It is a god method to be used to achieve high inventory
accuracy.
ABC Analysis: it is a method that categorized the goods in warehouse into three categories A, B
and C. The objective of this method is to focus the managers attention on the most valuable
items in category A (Collignon & Vermorel, 2012). Also, it is used in warehouses where different
goods are store and one type is moved frequently than the others. ABC analysis is a good
method to achieve high inventory accuracy as each category could be counted in a day using the
cycle count to reduce the costs involved and still operate other warehouse operations.

Technologies
Technology is a key role that operations in the supply chain now operate with. Technology is used to
minimize the errors and mistakes made by human and to have efficient operations.
RFID: Radio Frequency Identification is one of the developed automatic identification
technologies used in storing and handling inventory that promote accuracy, time and accurate
information to manage the flow of goods within the warehouse operations (Hellstrom &
Wiberg, 2010). RFID is a small electronic device that consists of an electronic chip and an
antenna; it has the ability to transmit information and data by just scanning the objects
identifier. The process of transmitting is done wirelessly through radio waves (Violino, 2006). As
inventory accuracy form a critical challenge in managing inventory; researches has indicates that
automatic identification technologies such as RFID is a good technologies that improve the

inventory management by improving the inventory accuracy which will lead to enhancing the
customer experience (Hellstrom & Wiberg, 2010).

Bar Coding Scanners: it is another device of automatic identification which save data and keep
them in a computer system. The barcode consist of pattern and gaps that form a binary code.
The scanned data is stored once the barcode is scanned wirelessly and it has to scan one
barcode each time. The barcode scanners are easy to use and not expensive. Managers that use
barcode scanners in their inventory management have identified an increase in the inventory
accuracy and it is better than the manual collection (Hamilton, Michael, & Wamba, 2006).

Systems
There are many systems used to achieve high inventory accuracy such as:

Kanban: it is a system that uses visual signal to start an action or the production process. It is
also called nervous system and it is a technique used in determining the quantities of process
production which help in smoothing the ordering system (Rouse, 2010). It consists of cards,
computer orders or labeled containers which indicates the need for more products.
Implementing the kanban system to products A and B with collaboration with suppliers with
ensure the accuracy of inventory and avoid stock-outs as their will not be human errors (Lean
Thinking and Methods, 2015).
KPI: key performance indicators are an advance system that calculates the requirements for net
inventory. It is used to assess the overall performance of operation occurring in a warehouse
(Zagena, 2009). KPIs are measured on a weekly, monthly and annually and they include SKU
accuracy and ensure the physical inventory accuracy (CDS, 2015). As human errors could occur,
KPIs are used to minimize these errors through measuring the performance.
Push and Pull system: this system is used by managers to control inventory and meet
customers demand. Each organization should know which models best fit their business (Hunt,

2015). Pull model is the ability to make products for customers after placing an order; it is also
called Just in Time. The benefit of this model is that organization does not have to worry about
storing costs for finished goods and wait for customers to buy products. The Push model is used
by some organizations as they forecast the demand for certain product and produce quantity of
it; then storing these products and managing inventory using control system while waiting
customers to purchase these products. This model is also known as lean inventory (SUTTER,
2014). Push and pull systems are used in organization with inventory management to ensure
inventory accuracy as to the push system, inventory has to be accurate as to not lose customers
and they would go to other competitors.

Additional concepts to achieve effective and efficient Inventory

Management
There are additional concepts associated with inventory management that corporate in achieving
effectiveness and efficiency. These concepts are:

Returns management: it is the flow of product from the customer to the supplier. The activities in the
return management are versa as it is a reverse logistics associated with returns. Prober returns
management help in having efficient inventory management as it associate in managing the flow of
reverse products and it gives the organization the opportunity to get rid from unwanted returns;
besides, identify the opportunities to reuse assets to minimize costs. In 2006, reverse logistics costs
were estimated as 4% of the organizations total logistics costs; this statistic indicates that returns
procedures have to be managed efficiently in order to have effective and efficient inventory
management (Rogers, Lambert, Croxton, & Garca-Dastugue, 2006). It is important to have good

information system for the returns management to be managed probably and be capable to handle
customers demand (CILT, 2010 n).

Safety and training: to operate an effective and efficient inventory management, employees involved
have to be trained on how to use the equipment, systems and technologies. In addition, equipment has
to be maintained regularly and certified to ensure the safety of employees using them. Besides that,
technologies must be up dated and upgraded to facilitate the management process. Moreover, there
are many health and safety requirements that organization should be ensured of in the working location
such as first aids equipment; which organization have to ensure that number of employees know how to
use and there should be qualified first aiders to deal with emergency situations. Furthermore, signs and
safety instructions must be placed in the working area where employees could see to avoid having
accidents and to better manage the flow of inventory (CILT, 2010 o).

Importance of Inventory Accuracy to all business

As mentioned above, inventory is a major asset for organizations as it helps in planning and budgeting
the organizations costs. That is why companies should always keep accurate inventory records and
inventory accuracy is considered as an essential tool that effect on the performance of managing the
inventory. The importance of inventory accuracy benefits businesses in different scoops such as:
Planning: accurate data helps the organization in determining whether to response to client
requests or project with the available inventory. Accurate data gives the business manages the
sense of when to place orders for new items. Moreover, it provide information to managers on
inventory trends for a period of time and managers could make some predictions on what items
should be produce more as they run out quickly. A manager that knows all these elements from
accurate data can plan their business probably and have efficient strategies in managing
inventory. In addition, investors and lenders want to see that the business has specific plans

which will lead to develop the relationship between investors and the businesss manager
(Thibodeaux, 2015).
Customer Service: having accurate data and information enable the business to respond
quickly to customers questions as answer could easily been found. When business response
quickly to customer this will create better impression of the organization. Moreover, having
accurate inventory will enable the employee to fast fill customer orders as the employee will
know where the inventory is stored and how much is available. Dealing with customers order
quickly will enable the business to attract more customers and this will lead to increasing the
profits. Customers do not like to wait and they might cancel the placed order and go to other
companies (Thibodeaux, 2015).
Expense control: if the business does not have accurate inventory records, it could not send
items for shipping until the deadline is close. Sending items at the last minute will cost the
business extra costs especially related to shipping. Business that do so and have large number of
customers daily will end up having big losses and financial issues. Moreover, some companies
orders extra inventory and when the inventory received they find out that items ordered are not
needed. It will cost business to replace goods and sometimes they will end up having extra
inventory that could not be sold. That is why having accurate inventory records and tracking
them is a strategy that business should apply to control expenses (Thibodeaux, 2015).
Rewards and Praise: having accurate inventory tracking will enable the business to measure
its success. As an example, managers could set goals to employees such as losing only one item
per month; and if employees meet this goal by keeping excellent records, manager could
motivate them through rewards. Motivation for employees will translates to have better
productivity work and keeping records accurate to get rewards (Thibodeaux, 2015).
Time, skills and Talents: having accurate inventory records will enable the employee to utilize
the time as operations process will be done quickly and there will be additional time where

employee could do other work. For instant, employees could come up with ways to facilitate the
reorganizing of inventory to achieve efficiency. This additional time enable the employees in the
business to explore their skills and talents in managing different area in the warehouse. For
example, a manger could find that an inventory employee working in lower levels has the ability
to analyze data (Thibodeaux, 2015).

Conclusion
In conclusion, inventory is an important asset and element for any organization to succeed. Managing
the inventory efficiently will increase the profits of a business and will attract more customer. In
addition, inventory accuracy could be gain through implementation of methods, technologies and
systems that helps in achieving high inventory accuracy which will benefit the organization from
different scoops. Organization should ensure the accuracy of their inventory records regularly.

References
Websites

Lean Thinking and Methods. (2015, February 19). Retrieved May 30, 2015, from EPA:
http://www.epa.gov/lean/environment/methods/kanban.htm
Barcodes inc. (2015). What is Inventory Management? Retrieved May 29, 2015, from Barcodesinc:
http://www.barcodesinc.com/articles/what-is-inventory-management.htm
CDS. (2015). Inventory Accuracy. Retrieved May 30, 2015, from CUSTOMIZED DISTRIBUTION SERVICES:
http://www.cdslogistics.com/cds-systems-and-services/inventory-accuracy/
Chand, S. (2015). Useful Notes on Costs Involved in Holding Inventories. Retrieved May 29, 2015, from
YourArticleLibrary: http://www.yourarticlelibrary.com/inventory-control/useful-notes-on-costsinvolved-in-holding-inventories-inventory-control/27943/
Collignon, J., & Vermorel, J. (2012, February). ABC ANALYSIS (INVENTORY). Retrieved May 30, 2015, from
Lokad: http://www.lokad.com/abc-analysis-(inventory)-definition
Gallina. (2015). Cycle Counts of Inventory, A Practical Guide. Retrieved May 30, 2015, from GALLINA LLP:
http://www.gallina.com/assets/resources/MD_Cycle_Counts_of_Inventory.pdf
Hamilton, D., Michael, K., & Wamba, S. F. (2006). Overcoming Visibility Issues in a Small-to-Medium
Retailer Using Automatic Identification and Data Capture Technology: An Evolutionary
Approach. Retrieved May 30, 2015, from University of Wollongong:
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.359.5674&rep=rep1&type=pdf
Hellstrom, D., & Wiberg, M. (2010, November 4). Improving inventory accuracy using RFID technology: a
case study. Retrieved May 30, 2015, from Emerald:
http://www.researchgate.net/profile/Daniel_Hellstroem/publication/233635950_Improving_inv
entory_accuracy_using_RFID_technology_a_case_study/links/0046353b3924a13ad2000000.pdf
Hunt, J. (2015). Push System Vs. Pull System Inventory Control. Retrieved May 30, 2015, from Chron:
http://smallbusiness.chron.com/push-system-vs-pull-system-inventory-control-12650.html
Investopedia. (2015). Inventory. Retrieved May 29, 2015, from Investopedia:
http://www.investopedia.com/terms/i/inventory.asp
Lee, Q. (2006). Strategos Guide To Cycle Counting & Inventory Accuracy. Retrieved May 30, 2015, from
Strategos, Inc: http://www.strategosinc.com/admin/buy/cc/CC_Guide02_sample.pdf
Merritt, C. (2015). Why Is Inventory Control Important? Retrieved May 29, 2015, from Chron:
http://smallbusiness.chron.com/inventory-control-important-74237.html

Murray, M. (2015). Inventory Carrying Costs. Retrieved May 29, 2015, from About.com:
http://logistics.about.com/od/tacticalsupplychain/a/Inventory-Carrying-Costs.htm
Rogers, D. S., Lambert, D. M., Croxton, K. L., & Garca-Dastugue, S. J. (2006). The Returns Management
Process. The International Journal of Logistics, 13, 2. Retrieved May 30, 2015, from
http://www.researchgate.net/profile/Douglas_Lambert2/publication/240259199_The_Returns_
Management_Process/links/0c96052de5e13a766c000000.pdf
Rouse, M. (2010, June). kanban. Retrieved May 30, 2015, from What is.com:
http://whatis.techtarget.com/definition/kanban
Strategosinc. (2015). Cycle Counting & Inventory Record Accuracy. Retrieved May 30, 2015, from
Strategosinc: http://www.strategosinc.com/inventory_record_accuracy.htm
SUTTER, B. (2014). PUSH VS. PULL INVENTORY MANAGEMENT STRATEGIES. Retrieved May 30, 2015,
from Buzz Small Business Magazine: http://www.waspbarcode.com/buzz/inventorymanagement-strategies/
Thibodeaux, W. (2015). The Importance of Keeping an Accurate Inventory. Retrieved May 30, 2015, from
Chron: http://smallbusiness.chron.com/importance-keeping-accurate-inventory-23304.html
Topham, H. (2015). Goals of Inventory Management. Retrieved May 29, 2015, from Chron:
http://smallbusiness.chron.com/goals-inventory-management-21713.html
Vermorel, E. (2013, September). INVENTORY COSTS. Retrieved May 29, 2015, from Lokad:
http://www.lokad.com/definition-inventory-costs#Ordering_costs_7
Violino, B. (2006, January 16). What is RFID? Retrieved May 30, 2015, from RFID Journal:
http://www.rfidjournal.com/articles/view?1339/
Winn solutions. (2013, May 19). The Importance of Inventory Management. Retrieved May 29, 2015,
from Winn solutions: http://www.winnsolutions.com/importance-of-inventory-management/
Zagena, Z. (2009, January 7). Key Performance Indicator (KPI) in Inventory Management. Retrieved May
30, 2015, from Inventory Management: http://inventorymanagment.blogspot.com/2009/01/key-performance-indicator-kpi-in_1938.html

Sessions
Chartered Institute of Logistics and Transport. (2010) h: (session8) Inventory Management (1).
Retrieved from Moodle database, Bahrain Polytechnic
Chartered Institute of Logistics and Transport. (2010) i: (session9) Inventory management (2).
Retrieved from Moodle database, Bahrain Polytechnic

Chartered Institute of Logistics and Transport. (2010) n: (session14) Returns Management. Retrieved
from Moodle database, Bahrain Polytechnic
Chartered Institute of Logistics and Transport. (2010) o: (session15) Safety and Training. Retrieved
from Moodle database, Bahrain Polytechnic