Inventory Control
Inventory Control
The greater the interchange of products and components, the more difficult the inventory-control process. The problems of distance and time and the
uncertainty of the international political and economic environment can make it difficult to determine correct reorder points. For example, if a manufacturer in a country with a weak currency regularly imports inventory from a country with a strong currency, management may wish to stockpile inventory in anticipation of a devaluation despite large carrying costs and the risk of damage or pilferage. Also, the firm may wish to stockpile inventory in anticipation of political chaos or legislation slowing down imports. Rapidly changing international events can ruin a smoothly running inventory-control system.
In recent years a lot of press has been given to the concept of just-in-time inventory management, a system that the Japanese have fine tuned. Just-in-time (JIT) manufacturing systems are becoming increasingly popular among U.S. manufacturers as a part of total quality control.
The concept behind JIT is that raw materials, parts, and components must be delivered to the production process just in time to be used. As a result, firms do not carry large inventories, thereby saving financing and storage costs. This means that parts must have few defects and must arrive on time to be used. Foreign sourcing can create big risks for JIT, since interruptions in the supply line can cause havoc. JIT implies that inventories need to be small, but foreign sourcing almost always requires large inventory levels
in order to counteract the risk. As stated earlier, the basic idea of JIT is to produce the items needed just in time to be used or sold. In order for companies in other countries to implement such a system, the following modifications in manufacturing systems and production processes have been suggested: smooth and stable production schedules, more flexibility in manufacturing, higher quality of inputs and throughputs, better cooperation between workers and management, the development of relationships with dependable suppliers, greater concentration geographically for suppliers and manufacturers, more appropriate plant configuration, and strong management commitment and support.27
Thus JIT is an important dimension to the overall offshore manufacturing strategy. Firms attempt to drive down costs by producing offshore as well as by applying JIT systems to reduce storage space and carrying costs of inventory. The key is to solve the problems of combining offshore manufacturing with JIT in order to utilize both strategies in order to become more competitive.
The greater the interchange of products and components, the more difficult the inventory-control process. The problems of distance and time and the
uncertainty of the international political and economic environment can make it difficult to determine correct reorder points. For example, if a manufacturer in a country with a weak currency regularly imports inventory from a country with a strong currency, management may wish to stockpile inventory in anticipation of a devaluation despite large carrying costs and the risk of damage or pilferage. Also, the firm may wish to stockpile inventory in anticipation of political chaos or legislation slowing down imports. Rapidly changing international events can ruin a smoothly running inventory-control system.
In recent years a lot of press has been given to the concept of just-in-time inventory management, a system that the Japanese have fine tuned. Just-in-time (JIT) manufacturing systems are becoming increasingly popular among U.S. manufacturers as a part of total quality control.
The concept behind JIT is that raw materials, parts, and components must be delivered to the production process just in time to be used. As a result, firms do not carry large inventories, thereby saving financing and storage costs. This means that parts must have few defects and must arrive on time to be used. Foreign sourcing can create big risks for JIT, since interruptions in the supply line can cause havoc. JIT implies that inventories need to be small, but foreign sourcing almost always requires large inventory levels
in order to counteract the risk. As stated earlier, the basic idea of JIT is to produce the items needed just in time to be used or sold. In order for companies in other countries to implement such a system, the following modifications in manufacturing systems and production processes have been suggested: smooth and stable production schedules, more flexibility in manufacturing, higher quality of inputs and throughputs, better cooperation between workers and management, the development of relationships with dependable suppliers, greater concentration geographically for suppliers and manufacturers, more appropriate plant configuration, and strong management commitment and support.27
Thus JIT is an important dimension to the overall offshore manufacturing strategy. Firms attempt to drive down costs by producing offshore as well as by applying JIT systems to reduce storage space and carrying costs of inventory. The key is to solve the problems of combining offshore manufacturing with JIT in order to utilize both strategies in order to become more competitive.
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