Inventory management is an interactive process that involves the process of conducting efficient oversight of the flow of raw materials and other production stocks of goods to minimize stock wastages. The process of inventory control often involves control of the transfer of the stock unit to prevent the organization experiencing high stock outflow as well as minimizing the risk of stock-outs that can have adverse effects on the production process of the organization. Poor stock control could have adverse effects on the company’s productivity and ultimately profitability. The Inventory management processes involve stock management employees and procurement staff identifying and specifying the placement and size of the stocked goods. In this case, stock management is the science of specifying the percentage and shape of the stocked goods that are required in a different location of operations of a firm. Firms with complex organizational structures have voluminous stock demands. Such firms have a multiplicity of inventory needs within different locations (Braun and Davis, 2003).
Such organizations have complex supply networks in the distribution of inventory to protect the planned and regular process of production from the random disturbances of stock run outs. Therefore the scope of stock management should also cover aspects of stock replenishment, inventory forecasting, valuation and asset management. Moreover, the inventory management should also cover aspects of inventory carrying costs, future price forecasting of inventory as well as management of physical aspects of the stock. The inventory managers should determine if the organization has adequate storage capacity for the stock regarding adequate spacing of stored goods in warehouses (or cold rooms). Moreover, inventory management must evaluate the quality of stock and determine if there exists defective stock the inventory control manager will initiate the procedure of returning the defective goods back to the supplier and the replenishment of better quality goods to the organization. The planning and control of inventory consider three key issues; first, managers determine the type and quantity of products that should be within the firm (Braun & Davis, 2003).
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Usually, the determination of types and quantity of goods is based on effective forecasting of the firm’s inventory needs as well as the availability of such goods from the suppliers. Secondly, the stock managers have to determine the reorder point and reorder quantity where the managers determine when to order and in which quantity (Braun & Davis, 2003). Lastly, the organization must consider the maximum and minimum stock level of the firm in which the firm can maintain stock without incurring high holding cost while at the same time minimizing ordering costs. Unfortunately, most organizations that have complex organizational structures and voluminous flow of inventory have huge challenges in maintaining and controlling stocks.
The main challenge is that the process of stock movement is long and involves the frequent movement of large volumes of stock. Therefore the traditional manual systems require construction of stock reports that are cumbersome and time-consuming to prepare. Moreover, the manual systems are prone to duplications as well as the erroneous entry of details; the manual system, therefore, increases the inadequacy and irrelevance of data (Braun & Davis, 2003). The manuals system also has limited capacity regarding storage of files and other stock management reports and has inadequate retrieval system hence the risk of loss and damage of data.
Contrastingly, stock management is relatively easy for most organizations that use computerized systems. In this regard, organizations are shifting from manual operations to computerized systems that support easy management and recoding of stock information. The computerized systems not only checks and records the amounts of stocks within the system but also monitors the flow of inventories within the systems. Although most organizations are reaping the benefits of simplified operational tasks and increased productivity due to the computerized systems, most firms tend to rely on the systems so much even when it comes to stock management. In this case, the company has issues in controlling stocks and inventory management. In the case of Norton Corporation, the management of stock is usually in the hands of a single employee and a single computer system in which the employee is the only person who receives the stock requisitions, disburses the stocks to different areas of operation and maintains stock records. Surprisingly, the department manager has only assigned the user-operated computers to the stock department only. He believes that the store's department does not need the control systems in large firms (Axsäter, 2015).
The manager's action of minimizing control checks has adverse effects on the stock management of the entire organization since the store's management can minimize the likelihood of errors by introducing inter-checking supervision of stock and improved stock custody thereby fastening stock flow and ultimately limiting operational inefficiencies (Braun & Davis, 2003). Third parties (usual suppliers) are therefore guaranteed greater efficiency and speed as well as surety of the systems. The internal system will provide evidence-based information concerning stock flow in an organization since the checks reduce the workload and time needed to prepare stock reports.
The firm, therefore, needs to integrate organizational controls where there is separate staff in charge of authorizing the goods. Moreover, the stock department must introduce segregation controls where different staffs are assigned different duties on a rotational basis; that is regarding recording stock, maintaining stock custody as well as ensuring the security of stock by ensuring accessibility is limited to authorized persons only.
Lastly, the organization must control micro computer applications by ensuring that the entries made into the system are consistent, complete and highly accurate. The application controls include Input controls over data rejections, conversions and reprocessing as well as edit and batch controls. The second controls include complete control where the store's department have a separate document verification center to ensure that all transactions are recorded correctly. Moreover, the store's department must have validity and conversion controls to ensure that all entries are properly recorded into the system and that they are accurate (Axsäter, 2015). Thirdly, the store's department must have a processing control that ensures that the entries are processed by the right programs and to the right master files and no duplication or processing errors. Lastly, the store's department must integrate output controls where the system produces accurate output that is distributed to the appropriate personnel.
References
Axsäter, S. (2015). Inventory control (Vol. 225). Springer.
Braun, L., Davis, E. (2003), Computer assisted audits tools techniques: “analysis and perspectives”, managerial auditing Journal, 18:9,725-731.
