Inventory management

1. Read the following international words. Define their meanings comparing them to the meanings of the corresponding Russian words:

activity, business, company, characteristic, design, diversification, effective, information, material, motivation, process, strategy, transport, system, typical, variability.

2. Complete the table using suitable forms:

Verb	Noun
to involve
	supply
to optimize
	determination
to overcome
	elimination

3. Translate English words and phrases in column a using Russian words and phrases from column b:

А	B
transport costs full load retrieval retailing	извлечение розничная торговля полная загрузка транспортные расходы

4. Observe the words and phrases from the text “Inventory Management”:

average demand rate	средний уровень спроса
assurance of delivery	гарантийная поставка
criticality of the item	критичность изделия (товара)
excessive inventory	чрезмерные материальные запасы
to hold levels of inventories	поддерживать уровень запасов
just-in-time	точно срок
lean production	небольшое производство
obsolete stock	устаревший ассортимент товаров
to own assets	владеть активами
price discounts	ценовые скидки
pull system	тянущая система
push system	толкающая система
scheduling system	система, работающая по графику

5. Read and translate the text:

Inventory Management

Inventory management is primarily about specifying the size and placement of stocked goods. Balancing the various tasks of inventory management means paying attention to three key aspects of any inventory. The first aspect has to do with time. This means understanding how long it takes for a supplier to process an order and execute a delivery. A solid understanding of how long it will take for those materials to transfer out of the inventory should be established. Knowing these two important lead times makes it possible to know when to place an order and how many units must be ordered to keep production running smoothly. Calculating what is known as buffer stock is also a key to effective inventory management. Tracking materials as they are used to create finished goods also helps to identify the need to adjust ordering amounts before the raw materials inventory gets dangerously low. Finally, inventory management has to do with keeping accurate records of finished goods that are ready for shipment. All operations have to hold levels of inventories. The typical reasons for this are: to allow for demands that are larger than expected, to allow for deliveries that are delayed or too small, to avoid delays in passing products to customers, to take advantage of price discounts, to buy items when the price is low and expected to rise, to make full loads and reduce transport costs, to provide cover for emergencies. There are problems with holding inventories: storage costs, interest is tie up¹ – therefore, a loss on capital, obsolete² stock, less money is available for the business, prices fall on held items.

Management wisdom between 1950s – 1980s was to own the whole supply-chain.

T H E S U P P L Y C H A I N	MATERIAL PROCESS
	Purchasing Receiving Storage R etrieval C onversion process P ackaging T ransport W arehouse/Retailing Customer	The key strategic questions: The questions for the firm are: What business are we in? Is it manufacturing or assembly? Is it both? Is it neither? To what extent does the firm want to own assets throughout the supply chain? With which suppliers (and numbers of suppliers) does the firm want to have strategic long-term relationships? 7. What is the extent of the suppliers' involvement: is it just delivery of materials, or does it involve other business areas, such as joint design of new products?

Reasons for vertical integration were the need for control (cost, assurance of delivery, quality) within the chain and possibility of diversification of business activities. There was a commonly believe that “the bigger we are, the better we are” – bigger on the balance sheet “Asset”¹. Nowadays this strategy is changing. Western firms began to understand how Japanese companies manage buyers-suppliers relationship. “Nowhere has the contrast between Western and Japanese manufacturing been more evident than in materials – or inventory – management.” Inventory management has become the indication of world class practices. It is a key parameter to assess the capabilities of management.

The role of inventory management is supplying goods to its customers, when suitable products are available at an acceptable price within reasonable timescale.

Objectives for inventory control are customer service, inventory cost and operating cost. The most profitable policy is not to optimize one of these at the expense of the others.

Managing inventory: the purpose of controlling the inventory is to drive the stocks toward their proper level which is determined by the characteristics of supply and demand patterns. The major factors are supply lead time, average demand rate, variability of demand, supply frequency, customer delivery time allowed.

There are also practical considerations such as: reliability of the supplier, criticality of the item, availability of item from other sources.

Just in Time Management: The Just-In-Time (JIT) inventory system is having the right goods/products, at the right time, at the right place, and in the exact amount without the safety net of excessive inventory. It overcomes the need for storing large volumes of stock ‘Just-In-Case’ they are needed. It requires setting up a contract with a logistics provider (JIT company) to store and deliver equipment as and when needed. JIT is the logical aim of tight inventory control, effective process planning and plant design, workforce motivation, cost reduction; logistics and even material require planning. JIT works as pull system whereas conventional stock control and material require planning (MRP) are essentially push system. Move to a true JIT requires changing of attitude: “We are doing alright, don’t risk it” has to be replaced “What we need to do and how do we make it happen?” The advantages of JIT are inventory investment, “supply to order” instead of “provision for stock”, less slow moving stock, better flexibility, simplified administration, waste elimination. Three main factors that determine safety stock are variability of demand, reliability of supply, and dependability of transport. One of the means through which JIT can be achieved is Kanban system (Kanban means “card” in Japanese). It is a concept related to lean and just-in-time (JIT) production. It is an information tool developed initially by the engineer Taiichi Ohno at Toyota. The Kanban is a card (or label) fastened to a specific item being manufactured (finished or semi finished product) that tells a workstation the quantity to be delivered to the workstation located just downstream. It is a scheduling system that tells you what to produce, when to produce it, and how much to produce.