Logistics and Inventory Control [Explained]

Logistics and Inventory

The success of many organizations comes from applying efficient logistics , that is, they fully exploit that characteristic of their service that makes them competitive and differentiate themselves from the rest, synchronized with what the customer needs to be satisfied. Companies must focus on what they really want and need, especially in the future. Logistics has a very important role in creating a future need for the customer, which is nothing crazy. Clients want to have comprehensive suppliers and not parts, this reduces costs and time.

On the other hand, we find inventories as part of the success of organizations. Every company has a stock, the amount of which will depend on the company’s policy and sales. Although it is not just having Inventory , but having control of movements or rotation.

Logistics and storage must facilitate the company’s analysis, creation, and optimization of its processes, leading it to take on new challenges, which in the era of information and technology makes it very easy to improve logistics movements and costs, based on analysis . of the information collected on logistics costs, transit time, financial cost of inventories, dimensions, routes, available spaces, delivery control, among others.

Inventory management

Inventory is nothing more than the storage of products that will be acquired by the final consumer for use. In addition, it includes consumable products and fixed assets that are necessary for the operation of the company.

Proper inventory management can avoid losses for the company, firstly, because it can lead to the theft or disappearance of products or consumables, since there is no control of what exists. Secondly, for companies that sell perishable products , due to the lack of rotation and control they can be damaged and production lost and thirdly and no less important, stock can run out causing customer dissatisfaction or loss.

The tasks corresponding to Inventory management are aimed at determining registration methods, rotation points, classification and inventory models. With the purpose of reducing stock levels to the maximum and ensuring stock availability at the right time.

Inventory Objectives

  • Insure against market uncertainties, reducing fluctuations in demand
  • Generate flexibility in processes and programming, through a continuous flow in production and packaging processes.
  • Facilitate a proactive role in the face of fluctuations in supply and demand.
  • Take advantage of volume discounts by optimizing the purchasing and selling processes of raw materials and supply.

Benefits of Inventory Management

  • The company knows and understands its commercial value, the value of its product and what it will need in the future.
  • Use of physical storage space.
  • In the event of a disaster or total loss, with Inventory control the losses can be demonstrated to the insurance that will provide protection to the company.
  • It allows you to satisfy consumer demand, becoming the best marketing strategy to retain customers and attract new ones.

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Types of Inventories

Inventories can be classified according to their degree of completion, their location in the company and according to their function .

According to its degree of Completion :

  • Raw Material Inventories
  • Inventories of Supplies and Materials
  • Inventories of products in process
  • Inventories of finished products
  • Inventories of packaged products

Depending on your location in the company :

  • Inventory in transit : Units or Products that belong to the company and are not in its location, for example, merchandise in transport on the way to its destination.
  • Plant Inventory : Units or products , owned by the company and located in the designated location.

According to its function

  • Operating inventory : Units that are integrated by replacement, once the existing ones are sold or used in production.
  • Safety Inventory : Units available in case of market fluctuations or delays in delivery by suppliers.

Steps to make an Inventory

  • Identify the assets to be inventoried.
  • Locate the places where the goods to be inventoried are stored.
  • Form a work team.
  • Walk through the warehouse, count the products and record them in pre-established formats.

Recommendations for optimal Inventory Control

  • Use an Inventory Control System that adapts to the company’s requirements.
  • Classify according to the product segmentation methodology according to previously established criteria. This methodology is known as ABC classification.
  • Prepare master catalogs that contain all the information of interest for each product .
  • Establish a standard in units of measurement or a conversion table between the unit of measurement used by the supplier and the unit used in the company.
  • Generate weekly or monthly reports, evaluated by the person responsible to be validated.
  • Carry out cycle counts and physical inventories twice a year, at least to compare it with the records of the Inventory control system used by the company.
  • Carry out a procedure for damaged or waste material, which clearly indicates what will be done with that material.

Inventory Costs

Carrying out inventories generates its costs, differentiated according to the nature of the company, classified as follows:

Ordering Costs

Commercial Activity: expenses associated with issuing the order: telephone calls, preparation of forms, consumables, reception processes.

Productive Activity: costs associated with the production run and the Logistics process

Inventory holding costs

They are those associated with the maintenance of inventories determined by the permanence of an average of Logistics units in a certain place, since they represent expenses for handling the products during their reception, storage, inspection and dispatch. In addition to insurance and tax expenses.

Non-existence Costs

They are those associated with the loss process, whether due to sales, breach of contract or replacement.

Despite the costs generated by Inventory, it becomes necessary so companies require tools to manage Inventories, reducing expenses.

Software applied to Inventory Management

Most companies that adopt an Inventory Management System use barcode software to control the existence of products . This software allows you to track the units sold. It is a system that provides the company with a minimum margin of human error, registering, through a gun or reading bar, both the product or unit that is replaced and the one that is sold.

Some applications allow you to make projections, which is first-hand information in decision making. The company must invest in the one that has the most benefits for its business.

Efficient Logistics must be articulated with optimal Inventory management , which, although achieving it generates expenses, there are more benefits and savings in production and sales that this management can provide to the supply chain.

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