Advances in Inventory Control

Abstract

Inventory control is an important part in logistics, which could manage the inventory by making revenue to keep continuous moving on to strengthen logistics and inventory management activities. The desired results and ensure measurable targets are set to drive the right decisions across the organization. The objective of the proposed model is to take into account the distributed block chain ledger system in industry. Block chain technology on inventory management will become a good traceability system. The impact of such digitization will be a very effective and efficient process that facilitates transactions for all industry people in the network.

1. Introduction

Inventory control plays an important role in running a business smoothly and ensuring a better economy for the company. Inventory is in the form of raw material, finished goods, or semifinished goods, etc., which are supplied to the customers at right time according to their need. A business needs to implement inventory control so that it can produce an optimum level of inventory and avoid excess inventory, minimize loss due to obsolescence, deterioration, and meet demand fluctuations. Inventory control is the process of ensuring to keep surplus, scrap, and obsolete at the minimum level, minimizing the shortage is due to nonavailability of stock at the right time, and with minimum holding cost.

2. Inventory control

Maintaining inventories is one of the most important issues in logistics supply management because it keeps the physical presence of the materials for future use. Inventory control in the industry is the process of maintenance of the stock to meet customer demand in terms of quantity and quality. The industry must have good inventory control, which is a common challenge in making the right decision for effective inventory management. Inventory management supervises the flow of goods from manufacturers to warehouses.

Inventories are stock piles of raw material, finished goods, or semifinished goods, etc., used in organization. On the other hand, in some industries such as high-tech industries, it is noted that components’ cost is decreasing at a sustained rate.

Due to the fluctuations in demands and lead time, the industry has to make decisions depending on the inventory.

1. How much to order?

2. When to replenish?

2.1 Cost of inventories

There are different types of costs to maintain in inventory, which are discussed in the following.

2.2 Ordering cost

The fixed cost of order quantity includes the postage, advertisements, consumption of stationary items, telephone charges, transportation, and incurred traveling expenditure and so on.

2.3 Holding cost

The cost associated with holding the goods in stock is called the holding cost. This cost includes the costs such as rent for space used for storage, facility maintenance, and related costs, insurance, taxes, breakage, pilferage, communication costs, and utilities, besides the cost of human resources employed in operations as well as management and warehouse overhead also depend on the value of the inventory.

2.4 Shortage cost

The cost associated with the items for running out of stock. That is, there is no inventory in stock. This cost includes the loss of potential profit through sales of items and loss of goodwill. It will cause the permanent loss of customers, which may cause the lost profit in future sales.

2.5 Revenue cost

The expensive cost in inventory incurred when an organization earns revenue by selling its products/services to the customers. It is the total cost of production and delivering a product or service to consumers. See Ref. [1]

If number of orders is increased, the ordering cost will be high, but the holding cost may be low. If the number of orders is decreased, the ordering cost will be low, but the holding cost may be high. Optimal order quantity is that order quantity that minimizes the total annual cost of ordering inventory and cost of holding inventory. See Ref. [2]. If the ordering cost and holding cost are equal, then the total annual cost is minimum as shown in Figure 1.

Figure 1.

Graphical representation of optimal order size and minimum total annual cost.

3. Important factors in inventory control

3.1 Demand

The number of units required per period is called demand. The demand pattern of a commodity may be either deterministic or probabilistic.

3.2 Lead time

The time gap between placing of an order and its actual arrival in the inventory is known as lead time. The inventory level of an item depends upon the length of its lead time.

3.3 Deterioration

A change or loss in the original value of the product is caused by certain factors that can worsen or damage the product. This is known as deterioration. It is common in goods such as vegetables, food products, dairy products, fruits, pharmaceutical products, etc. These items have less life time due to deterioration process.

Some products such as dried fish, usage of which may increase over time in an inventory level, or some products such as fast-growing animals by which its value in quantity to make better or increase their inventory level is known as amelioration. In stored items, the inventory may be affected by degrading or may be affected by upgrading their value to increase their size or increase their stock by both opposite activation such as deterioration or amelioration.

3.4 Backlogging

A certain quantity of products required more than the available stock, resulting in a customer demand that was not met. It causes a product shortage, and the cost associated with this shortage is known as the shortage cost.

Excess demand is sometimes met without causing inventory to be depleted before the next replenishment. Backlogging is the term for when a demand is met but not yet fulfilled. To prevent losing goodwill customers, the shortage is sometimes partially filled with higher administrative costs. This is referred to as partial backlogging.

3.5 Order cycle

The time period between placements of two successive orders is referred to as an order cycle. There are two types of inventory review systems.

3.6 Continuous review

In this system, the inventory levels are viewed continuously until it reaches a specified point where new order is placed.

3.7 Periodic review

In this system, the inventory levels are viewed at equal time intervals and orders are placed at such intervals.

3.8 Time horizon

The time period over which the inventory level will be controlled the time horizon.

3.9 Inventory models

There are two types of inventory models: deterministic models and probabilistic models.

Based on business nature, inventory can be classified into two ways. One is production inventory and another one is trading inventory.

3.10 Trading inventory

The trader holds the trading goods inventory in organizations.

3.11 Production inventory

Production industry focuses on stock valuation, stock management, and stock control. Production inventory used raw materials in production, the semifinished goods in the warehouse, and finished goods are ready to sell. The production system produces different types of products, and it is supplied into different warehouses. This system maintained a sufficient raw material in storage for smooth running of an enterprise. This inventory needs to take practice for keeping enough stock on hand so the production process can run effectively.

Processing of each product type is carried out in lots of units, and finished lots are placed in the warehouse. Lot processing time is deterministic. Failures may occur during the production process when the production facility is busy. Times between failures are exponentially distributed with average units.

Production inventory is further classified into three inventories. There are raw materials, work-in process, and finished goods.

3.12 Raw materials

Raw materials can be commodities or components that are used in the production of goods and finished goods inventory. It can be classified as either direct materials or indirect materials. Material cost adds in production with the manufacturing overhead to calculate the raw materials inventory.

For example, automobile companies purchase various kinds of metals such as steel, aluminum, resins, copper, lead, and platinum from various suppliers that are used to make finished goods. i.e., cars. Flour is considered as indirect materials in bakery company to make finished products such as bread, pasta, crackers, many cakes, and many other foods are made using flour.

Raw materials include oil, lubricant, light bulbs, screws, nuts, bolts, etc., which are the examples of indirect raw materials.

3.13 Work-in-process

It is defined as the goods that are in different stages of production in production process. Products have been partially completed in the production cycle. Sometimes, products are waiting to be assembled and sold. Inventory level of work-in-progress should be kept as low as possible, which gives better returns to the industry. It can be avoided to lock up the capital of the enterprise.

3.14 Finished goods

Products are completely finished, which are ready for sale in the production process. That is, finished goods inventory is in stock that is available for customers to purchase. In production industry, the product is first made and then sold to the buyers or the received order is first, and then it is manufactured as per requirements with some specifications.

3.15 MRO

MRO represents the maintenance, repair, and operation supplies. These are materials, equipment, and supplies used in the production process at a manufacturing plant but are not part of the finished goods being produced.

3.16 Transportation inventories (pipeline inventories)

Transportation inventories are that inventory items are shipped from one distribution center to another, and significant amount of time is consumed in the transshipment of items.

3.17 Buffer inventory

It is an extra stored volume of products, which is kept to meet uncertainties of demand and supply. It is used to reduce the incidence or severity of stock-out situations in sales and thus provides better customer service.

3.18 Anticipation inventory

Anticipation inventory is an extra finished products or raw materials that a company must keep such inventory on hand to meet expecting a change in customer demand in the near future. This stock would provide benefits to companies by satisfying their customers if there is a surge in demand. These are built up in advance for the reason of large sales, a promotion program, or a plant shutdown period. It keeps men and machine ready for future needs. For example, keeping crackers well before Diwali or air coolers or air conditioners before summer.

3.19 Decoupling inventory

It is a type of inventory that is of use to store inventory. It is used to meet purchase orders in the case of inventory production slowing or stopping. If various production stages operate successively, then the breakdown of one or many may affect the entire system. This kind of interdependence is not only expensive but also disruptive for the entire system. The inventories used to reduce the interdependence of various stages of the production system are known as decoupling inventories.

3.20 Lot size inventory

It is the quantity of an item ordered for delivery on a specific date or manufactured in a single production run. That is, the amount of quantity produced/purchased during single production cycle. These inventories are stored in advance rather than the exact amount needed at a given time.

3.21 Backorder inventory models

A customer wants a new model two-wheeler bike Yezdi Roadster’22 model. It is not available in the stock in motor cycle show room. However, if the customer is willing to wait a few days or weeks, the retailer is able to order the bike. This type of shortage is called as backorder. In this backorder situation, the customer waits until the order arrives and then order is filled. The retailer should maintain a short period of waiting to receive the order and which is delivered immediately. The negative inventory level is occurred or incurred during the back order. It incurs a backorder cost in terms of the labor cost and special delivery cost while handling the backorders. In backorder situation, the retailer should maintain a goodwill customer or to avoid loss of goodwill because some customer will have to wait for their orders. If backorders can be tolerated by the customers, the backorder cost measures associated with the loss of goodwill when a customer wait for an order. See Ref. [3].

The items with high backordering costs will be handled with few backorders. Allowing the optimal number of planned backorders is projecting a minimum percentage savings in cost from the no shortage in inventory model.

3.22 Lowering inventory cost

As teamwork, coordination, and improvement of information sharing, opportunities are available for better cost control in the operation of inventory system. Some industries have a contract supplier under which the supplier regularly gives information regarding the status and schedule of upcoming production runs. The supplier’s information concerning scheduled production runs provides a better understanding of the lead time involved for a product and the resulting lead-time demand. Information sharing by the supplier thus enables the order quantity, reorder point system to operate with a lower inventory holding cost.

Inventory may be checked and orders placed on a weekly, biweekly, monthly, or some other periodic basis. When a firm or business handles multiple products, the periodic review system offers the advantage of requiring that orders for several items be placed at the same present periodic review time. Some periodic review time with this type of inventory system, the shipping and receiving of orders for multiple products are easily coordinated.

3.23 Inventory management system

The industry bears a great deal of responsibility for producing high-quality goods by using appropriate natural resources and ensuring that they are delivered in good condition at the appropriate time. There are always some central issues such as preservation maintenance, product quality, and the need for good production in warehouse management. The right use of good products not only maintains good health but also makes it economically viable. It is more expensive to produce and distribute good-quality products than to produce low-quality items.

Some industries facilitate to use the advance technology for producing good quality of the products that stimulate the customers to buy quality products. This is because it does stick or seal on the product that provides the best-quality coating products. This technology would reduce product losses and increase the number of products available, ensuring the highest possible quality of products.

Many industries face a challenge in bringing good products to market with storage facilities using safety techniques to reduce perishability. Some technology is used to preserve liquid products and the industry invests in the cost/benefit of technology, which improves quality and reduces the rate of spoilage with good products.

Inventory management is affected by many factors such as unwanted defective items through processing, large quantities of stored products, improper distribution to distribution centers. Inventory requires more attention to allocating the right space to store products, preserving maintained goods, and fluctuations in the timely delivery of products. By holding an eye on inventory, the decision-makers can maintain a list of stock and what products are monitoring credits and remain in the warehouse. Because of the complexities of goods stored in warehouse with external technology, inventory systems must pay more attention to reduce the emission and power consumption in the processing industry. Inventory systems require accurate information about the inventory of goods to avoid the loss of inventory, creating more than profits.

In more general terms, the focus of the just-in-time philosophy is on avoiding waste wherever it might occur in the production process. One form of waste is unnecessary inventory. Others are unnecessarily large setup costs, unnecessarily long lead times, production facilities that are not operational when they are needed and defective items. Minimizing these forms of waste is a key component of superior inventory management.

3.24 Carbon emission reduction

Carbon taxes and cap-and-trade policies are being used by governments to reduce carbon emissions. The cost of carbon dioxide emissions is the subject of carbon tax policy.

A cap-and-trade policy is a type of trade policy that imposes limitations on carbon dioxide emissions reductions. Arash Sepehri [4] developed a model for controlling carbon emissions that included a carbon cap-and-tax policy in green technologies. In terms of productivity and social welfare, Xiaoping Xu proposed grandfather-based and benchmark-based allocation methods that will result in lower carbon emissions. See Ref. [5].

3.25 Block chain technology

Nowadays, block chain technology is the backbone of many organizations. Block chain is a cloud storage network, which shares out-of-records among members in the network space in a secure way. It is accountable to all and provides strong technical support for record transactions that ensure transparency for all members within the network. Block chain technology can increase trust and security by strengthening and collaborating on shared data knowledge about inventory in a centralized network based on various authorities and responsibilities.

Because inventory involves the difficulty of accurately estimating sales levels, production schedules, demand and consumption requirements, management needs block chain technology to make inventory decisions.

Block chain can greatly improve to support right decisions, the transparency of operations in any industry that becomes the heart of business strategy. It is used to maintain inventory data with either RFID tags or electronic product cods, which are unique identifiers or digital signatures. Transaction of any inventory data is recorded on the block chain, which transferred among involving parties who have rights to see the entire data that provides a complete, trustworthy.

Block chain technology is digital technology that is a decentralized ledger for recording inventory data transactions between multiple partners. Partners can view any variation in stock through this technology such as excess inventory or low stock inventory. Loss or fraud in the recorded data can be avoided. In the Qiu-xiang Li supply chain model [6], blockchain technology is considered to have an impact on the game and market demand between members of the supply chain through information sharing.

Inventory control is an important part in logistics, which could manage the inventory by making revenue to keep continuous moving on to strengthen logistics and inventory management activities. Due to the need to retain this physical stock of goods in future usage, inventory management is one of the most important aspects of logistics supply management. The desired results and ensure measurable targets are set to drive the right decisions across the organization.