Operational management of inventory

OPERATION MANAGEMENT Contents OPERATION MANAGEMENT1 Contents 2 INTRODUCTION 3 MAIN BODY3 Types of inventories3 Analyze how goods and service design concepts are integrated 4 Role of inventory4 Four different types of layouts5 Two metrics to evaluate supply chain performance6 CONCLUSION 8 REFERENCES 9 INTRODUCTION Inventory management is defined as systematic approach to selling, sourcing and storing inventory in form of raw materials as well as finished products (Axs ter, 2015). MAIN BODY 1 Types of inventories The different types of

OPERATION MANAGEMENT

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Contents
OPERATION MANAGEMENT.....................................................................................................1
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Types of inventories...............................................................................................................3
Analyze how goods and service design concepts are integrated............................................4
Role of inventory....................................................................................................................4
Four different types of layouts...............................................................................................5
Two metrics to evaluate supply chain performance...............................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Inventory management is defined as systematic approach to selling, sourcing and storing
inventory in form of raw materials as well as finished products (Axsäter, 2015). The given
organisation is based on two different manufacturing companies named as General Motors (GM)
and Ford Motors situated at United States founded in 1908 and 1903 respectively. Both deals in
manufacturing of automobiles, commercial vehicles, automobile parts, luxury vehicles. The main
aim of report is to discuss about types of inventories which is used by companies, way of goods
and services design concept along with role of inventory. It also highlights about kinds of layouts
their importance and supply chain management as well as way to improve inventory
management.
MAIN BODY
Types of inventories
The different types of inventories which both companies have to manage along with their
characteristics are described below:
In context of General Motors, types of inventory include productive materials, supplies,
work in progress and finished products. Here, productive materials such as steel, copper,
aluminium, lead, platinum, resins. The respective organisation does not carry excess inventory of
raw materials for their production. These inventories help in manufacturing of final products and
service. Similarly, on other hand, finished products are composed of service or vehicle parts like
cars, vehicles and so on. The finished part is regarded as largest component of inventory that
makes half of total inventory. GM makes balance among both raw materials and finished
products (Balcik, Bozkir & Kundakcioglu, 2016)
In addition to this, Ford Motor also has to manage different inventory such as raw
materials, work in progress, supplies and finished goods. It is also manufacturing company
which produced automobiles, luxury vehicles, pickup trucks, SUVs, commercial vehicles and so
on. The respective organisation has to manage raw materials such as aluminium, steel, leads and
moves towards work in progress stage where they have to process all these materials and convert
into finished goods and products (Bushue & et. al., 2015). For example, car manufactured by
Ford organisation has to collect material first then process them through different stages and
finally car is manufactured.

Analyze how goods and service design concepts are integrated
Service design refers to a process and planning of integrating people, infrastructure, skills,
capabilities, machinery etc according to their mission and vision so that overall aim of business
would be achieve with highest productivity i.e., satisfy customer demands and at the same time
improving stakeholders income. On the other hand, manufacturing industry good design are
dependent on few things like continuous improvements in the products, lower operational cost
which leads to lower cost price to customer, innovative, long lasting etc (Feng & et. al., 2015)
For instance, service design primary objective is to lower down the operation cost due to which
they follow just in time techniques for managing their inventory so that no extra money would be
included in the process. On the other opposite side, goods designing also focus on lower
operational cost which ends up in aligning each other goals in the end. For instance, Ford
procures their raw material for products after setting out the plan of innovating products with the
assistance of human resources and then with the help of machinery and infrastructure, tries to
reduce the operational cost which leads to lower cost price thus motivating potential customer to
buy it without compromising with the quality of it (Fichtinger & et. al., 2015)
Role of inventory
Inventory plays an essential role in the success of any organisation as it is directly connected to
operational cost or product cost which influences customer to buy the product or not to but in
some point. For instance, if company buys the raw materials way before they are planning to
start their manufacturing then it will increase the material handling and inventory management
cost which leads to increase in cost price of the product. Due to high sensitivity to price,
customer will shift their preference to other company who is selling the same feature product in
less price as compare to competitors thus affecting company performance in a negative way
(Gallino, Moreno & Stamatopoulos, 2017)
Operational efficiency can be monitor and evaluate on the basis of money incur in the
operational cost as compare to other companies. If company incurs high capital in managing
their operational unit then it will decrease the operational efficiency to a certain level. Apart from
this, potential customer are satisfied when they gets the product with innovative features in
limited price so if any technology arrives after company procures raw material in advance then it
will degrade customer satisfaction with the company and products. For instance, if Ford orders
their inventory before they even planned their product and service design then their product

features will be outdated or old as compare to General Motors who orders their raw material at
the end so that they can procure new and latest technology in the market. Thus customer will be
attracted to General Motors instead of Ford motors thus improving their company performances,
operational efficiency and customer satisfaction which ends up in increasing their profitability
and market share (Hiassat, Diabat & Rahwan, 2017)
Four different types of layouts
There are four different types of layout which are explain below,
Product Layout: If the machinery and map of the plant are designed and placed according to
sequence of operation management then it is known as product layout. This type of layout is
rigid in nature as single type of product is produced and must be in larger quantities if company
wants to lower down their operational cost.
Process Layout: This process is more flexible as compare to product layout as different kind of
work is done in different areas which can change according to product’s requirements. More
focus is given to the standardisation of product and works only in lower quantities as this process
takes time as compare to product layout (Hübner, Holzapfel & Kuhn, 2015)
Fixed Position Layout: This type of layout is least needed in the current environment as most of
the components of the manufacturing cycle are fixed and rigid and all other components like man
power, machinery, product, raw materials needs to move on a continuous basis. There are many
disadvantages associated with it like highly skilled man power is needed to run the operation
smoothly, movement of machines and other factors requires time thus increasing operational
cost, complex production process which leads to more chances of error.
Combination Layout: This type of layout is combination of above three layouts and mostly uses
in this era due to changing needs and demands of customers on a regular basis (Jalali &
Nieuwenhuyse, 2015)
Both the companies rely on combination layout instead of focusing on one layout as it gives
more flexibility to their operation unit to change their process according to external demands.
For instance, if Ford wants to produce product in larger quantity then they implement product
layout in their system but if they wants to produce standardised products then they change their
process to process layout. So overall, flexible layout assist companies to improve their market
share by innovating new products and at the same time reducing overall production cost to its
minimum (Zepeda, Nyaga & Young, 2016)

Two metrics to evaluate supply chain performance
It is important to measure and evaluate supply chain on a continuous basis as it assists them to
identify their weakness and strengths so that they can make their process improvements
accordingly. Two main metrics which is used by most of the manufacturing companies is
inventory days of supply and inventory turnover metrics.
Inventory days of supply means number of Days Company requires to run out of supply
of raw material if it is not replenished or procured. It can be calculated through inventory on
hand divided by average daily usage of raw materials. If numbers of days are higher than
operational efficiency of company is lower and vice versa. For instance, if GM runs on their
supply chain for longer period of time then their raw material will get outdated and it will be less
advanced thus affecting favourable relationship with the customer (Keshavarz Ghorabaee & et.
al., 2015). On the other hand, if company runs for shorter days that mean company can procure
latest products which can be equipped in to final products moreover, capital can be invested in
other departments instead of tying up with inventory thus improving company’s efficiency.
Inventory turnover means number of cycle of inventory which company needs per year or
per month. If inventory cycle is higher than it indicates efficient and productivity supply chain
efficiency (Sarkar & Kumar, 2015)
Overall, if General Motors and Fords want to continue their effective performance in the
market then they need to maintain their inventory and material handling cost to its minimum.

Ways to improve the inventory management
Inventory management benefits reduce in spoilage of raw materials, reducing dead stock
resulting in low capital investment in the starting and at last, save storage cost which results in
lower operational cost. Various ways through which General Motors and Ford can manage their
inventory is given below,
 To follow first in first out process in which stock or inventory which comes first must be
used first so that dead stock and spoiling of raw material will be reduce.
 Contingency planning must be done by company in which minimum inventory level
would be set by company so that company will never run out of inventory hence smooth
functioning of operations (Syntetos, Babai & Gardner, 2015)
 Regular auditing of physical inventory and inventory cycle must be done so that any type
of weakness would be removed.
 Companies must run on ABC priority i.e., high value of product must only be ordered
when it is needed as it is costly in nature. Moderate value products must be properly
predicted so to avoid any kind of spoilage and at last, low value product which includes
screws, wires and other menial products must always be present in the company so that
smooth functioning of operations would be attain (Van Houtum & Kranenburg, 2015).

CONCLUSION
As mentioned above inventory plays an essential role in market capture due to which
companies needs to change their strategies according to external as well as internal requirements.
Besides this, supply chain objectives must be to reduce the operational cost so that more
customer would be attracted by offering low cost price of the product. Apart from that, proper
skills and capabilities must be inculcated within the employees as they are the one who directly
engage in the daily supply chain operations.

REFERENCES
Books and Journals
Axsäter, S. (2015). Inventory control (Vol. 225). Springer.
Balcik, B., Bozkir, C. D. C., & Kundakcioglu, O. E. (2016). A literature review on inventory
management in humanitarian supply chains. Surveys in Operations Research and
Management Science. 21(2). 101-116.
Bushuev, M. A. & et. al., (2015). A review of inventory lot sizing review papers. Management
Research Review.
Feng, M. & et. al., (2015). Does ineffective internal control over financial reporting affect a
firm's operations? Evidence from firms' inventory management. The Accounting Review.
90(2). 529-557.
Fichtinger, J. & et. al., (2015). Assessing the environmental impact of integrated inventory and
warehouse management. International Journal of Production Economics. 170. 717-729.
Gallino, S., Moreno, A., & Stamatopoulos, I. (2017). Channel integration, sales dispersion, and
inventory management. Management Science. 63(9). 2813-2831.
Hiassat, A., Diabat, A., & Rahwan, I. (2017). A genetic algorithm approach for location-
inventory-routing problem with perishable products. Journal of manufacturing systems.
42. 93-103.
Hübner, A., Holzapfel, A., & Kuhn, H. (2015). Operations management in multi-channel
retailing: an exploratory study. Operations Management Research. 8(3-4). 84-100.
Jalali, H., & Nieuwenhuyse, I. V. (2015). Simulation optimization in inventory replenishment: a
classification. IIE Transactions. 47(11). 1217-1235.
Keshavarz Ghorabaee, M. & et. al., (2015). Multi-criteria inventory classification using a new
method of evaluation based on distance from average solution (EDAS). Informatica.
26(3). 435-451.
Sarkar, S., & Kumar, S. (2015). A behavioral experiment on inventory management with supply
chain disruption. International journal of production economics. 169. 169-178.
Syntetos, A. A., Babai, M. Z., & Gardner Jr, E. S. (2015). Forecasting intermittent inventory
demands: simple parametric methods vs. bootstrapping. Journal of Business Research.
68(8). 1746-1752.

Van Houtum, G. J., & Kranenburg, B. (2015). Spare parts inventory control under system
availability constraints (Vol. 227). Springer.
Zepeda, E. D., Nyaga, G. N., & Young, G. J. (2016). Supply chain risk management and hospital
inventory: Effects of system affiliation. Journal of Operations Management. 44. 30-47.
Online
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