Inventory Management: The Ultimate Guide

Inventory management is the process through which organizations or manufacturers supervise the flow of goods in the production process until they are finally delivered to customers. Two classic examples of manufacturing companies that have successfully implemented inventory management strategies in their organization include Toyota and Apple. The most popular type of inventory management system implemented by the two companies is just-in-time (JIT). In the JIT method, materials, labor, and goods are scheduled in that they become replenished precisely when they are needed in the production process (Aoki & Mouer, 1) . The JIT inventory method is often used to increase efficiency and increase waste by ensuring that products are only produced once a customer has placed an order and paid for it rather than having products on the shelves waiting for a purchase. 

Types of Inventories Managed by Toyota and Apple 

Toyota is a leading manufacturer in the auto industry that primarily produces and sells specialty products. The raw materials for manufacturing vehicles are only brought on the production floor once a customer has placed an order. Toyota also ensures that no parts of inventory are includes in the next station during the production process unless they are required (Brown, 2) . As a result, the amount of Toyota's inventory is always maintained at a minimum, thus leading to lower costs. Even though Toyota does not sell seasonal products, their dealership offers seasonal accessories or services such as winter tires. 

The bulk of inventories managed by Apple Inc. include iPhones, Mac, Apple TV, Apple watch, software, phone accessories, and smart speakers ( Lockamy III, 3, p. 180). Most of the inventories managed by Apple are communication and technological devices. The company, however, does not manufacture its inventory in the house but rather engages in contract manufacturing. Contract manufacturing has enabled Apple to keep production costs at a minimum and meet customer needs by finding the right balance of inventory. 

Integration of Goods and Service Design Concepts 

Apple embraces creativity and innovation to integrate its goods and services. Innovation has enabled Apple to manufacture IT wares with aesthetic values that have attracted users. Through vertical integration, Apple has been in a position to engage in acquisitions that have enabled it to keep costs at a minimum. For instance, the acquisition of Dialog's assets enabled Apple to develop effective power-management chips in-house to improve products, such as Apple Watch (Benchmark International, 4) . The sleek appearance of its products, such as Mac Mini, is incorporated with excellent services such as iTunes, Mac App Store, and Apple Music that give users an enriching experience (Elmansy, 5). Users using Mac Mini can also connect their devices to Apple LED displays, thereby having access to a powerful multimedia computer. The goods and service design concepts are undergoing various stages. It starts with idea generation, creation of product start-up, prototyping, and production management. 

The concepts used by Toyota to integrate its goods and services and outdo their competitors include speed to market and cost-leadership and productivity. Toyota has maintained a functionally based organization with integrated leadership from product heads. Toyota uses a two-dimensional integration strategy: horizontal integration and vertical integration. Toyota’s vertical integration has ensured that the company is involved in more stages in the value chain, thereby leading to greater efficiency in terms of lower costs (Zhang, Gunasekaran, & Wang, 6 ). Toyota's vertical integration includes both backward and forward integration. The backward integration has, for instance, enabled to successfully gain a reliable supply of quality designed components from external producers. Through mergers and acquisitions, Toyota has been able to eliminate the threat of supplier bargaining power. An example of the company's effective integration policy is the Panasonic EV, which develops hybrid batteries for Toyota's automobiles. 

Role of Inventory 

Inventory types that have led to the increased performance, operation efficiency, and customer satisfaction of both Toyota and Apple include raw material, work in progress, and finished goods. Toyota strives to ensure that raw materials are only brought to the production floor until its dealers place an order. The company has thus been able to keep inventory at a minimum, which, as a result, led to operational efficiency due to low holding costs. Small quantities of raw materials are often held at each station and replenished once used to ensure that the work-in-progress is not interrupted (Aoki & Mouer, 1, p. 2) . The move has allowed Toyota to adapt quickly to customer demands in its global markets. The tightly linked product-development systems have enabled Toyota to manufacture a range of vehicles while taking into account the diversified needs of customers. That is, it makes trucks, pickups, and cars. Its vehicles are also equipped with leading-edge technology, thus enabling it to remain competitive in the market. 

The creative and innovative products of Apple, on the other hand, have largely contributed to its success in the market. Its empathetic designs have strengthened its competency, thereby attracting users’ love. Having only one central warehouse in the United States has enabled Apple to reduce waste and storage costs (Lockamy, 3, p. 179). Most of its inventory is held in its dealership stores, and the company also has dropshipping arrangements for online purchases. Outsourcing of production and the use of cutting-edge technology has also enabled Apple to maximize efficiency by slashing costs and reducing overstock. 

Company Layouts 

Research shows that an efficient facility layout helps in reducing unnecessary material handling, thereby enabling companies to reduce production costs. The four common types of layouts found in manufacturing facilities like that of Toyota and Apple are process, product, fixed position, and cellular layouts. In the process layout, machines, and processes performing the same type of functions are grouped ( Kovács & Kot, 7, p. 67). Toyota uses process layout to batch production of different car body parts such as doors, bonnets, and engines. The process layout has enabled Toyota to have the flexibility of equipment and personnel. In Apple, each product feature, such as screens, phone battery, and speakers are designed and manufactured by different departments to increase efficiency. The layout has enabled Apple to optimize flow and minimize waste. 

Product layout, on the other hand, is used in repetitive assembly and continuous flow industries for standardized products. The layout enhances a high degree of equipment utilization and helps companies produce a large volume of products within a short period. A Fixed-position layout is preferable where a product being manufactured is too large, or heavy, or fragile to move (Kovács & Kot, 7, p. 71). Therefore, all portable resources needed in production are taken in a fixated area where the product is being manufactured. A fixed-position layout leads to low fixed costs because the investment in the layout is minimal. The layout also makes it possible for the companies to make adjustments to meet the absence of workers. In cellular layout, processing needs for a set of manufactured items with similar design characteristics are grouped into cells. Equipment is then configured to support cellular manufacturing without necessarily moving them into a physical cell. The cellular layout enables an organization to save on the cost by speeding the processing time and ensuring less work-in-process inventory. 

Metrics Used in Evaluating Supply Chain Performance 

Inventory turnover and cash-to-cash time cycle metrics can be used to evaluate the performance of Toyota and Apple. The companies can use the cash-to-cash time cycle to ascertain the time they will need to transfer manufactured products into bonafide cash flows. Toyota and Apple can use the metric to visualize the period with which they pay their suppliers, and the time it receives payment from users of its products. Shortening the conversion cycle will enable Apple to run its businesses with less money committed in operations. 

Inventory turnover metric enables enterprises to understand the average number of times it takes for inventory to be converted into sales over a given period ( Ahi, P., & Searcy, 8) . The companies can use the metric to calculate their shipping rate while comparing it to that of other players in the industry to know where they stand and create a clear management practice and process strategy. Such practices will help boost brand authority as well as increase the bottom line. 

Ways to Improve Inventory Management 

One of the ways Apple Inc. can improve its inventory management is by setting par levels for its manufactured technological products. Per levels involves setting the minimum amount of products that a company must hold at all times. When inventory stock dips below a predetermined level, Apple will be in a position to produce more to satisfy the needs of customers (Campbell, 9) . Also, technological products lose value quickly with time. Therefore, when a competitor introduces new and improved products, Apple is likely to take a hit, especially if it has lots of inventory on hand. 

Toyota, on the other hand, can improve its inventory management through accurate forecasting. Predicting demand will enable Toyota to understand how the market is fairing, thus making it easy to project future sales. Accurate forecasting can be done by analyzing trends in the market and seasonality of the global economy. Accurate forecasting will allow the company to prioritize its inventory management system and focus on manufacturing products that are in high demand. 

Conclusion 

Effective inventory management is vital in ensuring that companies have enough stock on hand to meet customer demand. Failure to institute effective management policies is likely to make companies lose money on potential sales due to spoilage, deadstock, and increased storage costs. 

Resources  

1. Aoki, K., & Mouer, R., 2015. Just ‐ in ‐ Time Production.  The Wiley Blackwell Encyclopedia of Consumption and Consumer Studies . p. 1-2. https://onlinelibrary.wiley.com/doi/abs/10.1002/9781118989463.wbeccs154 

2. Brown, M. 2016.  SC2020: Toyota Production System & Supply Chain  (Doctoral dissertation). https://dspace.mit.edu/bitstream/handle/1721.1/101917/2005_1_Brown.pdf?sequence=1 

3. Lockamy III, A. 2017. An examination of external risk factors in Apple Inc.’s supply chain. In  Supply Chain Forum: An International Journal  p. 177-188. Taylor & Francis. https://www.tandfonline.com/doi/abs/10.1080/16258312.2017.1328252 

4. Benchmark International, B. 2018.  The Benefits of Vertical Integration As Evidenced by Apple's Intent to Purchase Assets from Dialog . Blog.benchmarkcorporate.com. Retrieved 6 May 2020, from https://blog.benchmarkcorporate.com/the-benefits-of-vertical-integration. 

5. Elmansy, R. 2014.  How Does Apple's Design Process Work? . Designorate. Retrieved 6 May 2020, from https://www.designorate.com/how-does-apples-design-process-work/. 

6. Zhang, C., Gunasekaran, A., & Wang, W. Y. C. 2015. A comprehensive model for supply chain integration.  Benchmarking: An International Journal . https://www.emerald.com/insight/content/doi/10.1108/BIJ-05-2013-0060/full/html 

7. Kovács, G., & Kot, S. 2017. Facility layout redesign for efficiency improvement and cost reduction.  Journal of Applied Mathematics and Computational Mechanics ,  p. 63-74. https://jamcm.pcz.pl/?id=view&volume=16&issue=1&article=6 

8. Ahi, P., & Searcy, C. 2015. An analysis of metrics used to measure performance in green and sustainable supply chains.  Journal of Cleaner Production .  p. 360-377. https://www.sciencedirect.com/science/article/pii/S0959652614008270 

9. Campbell, C. 2018.  You're Losing Money By Not Using These 8 Inventory Management Techniques . Shopify. Retrieved 6 May 2020, from https://www.shopify.com/blog/inventory-management.