Question

Part 2: Compare and contrast the strengths and weaknesses of the three types of inventory management systems. Recommend which would be best for an automotive supply company that manufactures small to medium size metal parts such as shocks, struts, control arms, bushings etc. The company is geographically dispersed with 25 different operating locations nationwide.

Answer 1

Types of inventory management systems:

Following are the three types of inventory management systems:

• Manual inventory management: this is applicable mainly in case of small businesses which has very few products. These kinds of businesses keep track of their inventory manually. The easy way to do this is by using a spreadsheet. We can take the example of small bakery that can keep track of inventory usage & purchases. The owner can also use the spreadsheet to determine when the materials have to be reordered.

Strengths & weaknesses:

Manual systems are mainly beneficial for the small businesses to maintain their inventory with little investment. Maintaining data integrity is considered to be a major downside by using spreadsheet. Also there can be chances of inaccuracies in the output of the data.

• Periodic inventory systems: under this employees must count the ingredients & the components that they have on hand on daily, weekly, monthly or annual basis. The more frequent the process is done more accurate the system is. Employees can then enter the numbers in the spreadsheet. Also using the formulas they can decide if they have enough materials for the week.

Strengths & weaknesses:

They are easy & cheap to implement, ideal for small businesses. The drawback is that you can’t ensure accuracy at all times. The system is not suitable once the business starts growing & also exercising control is another difficult task.

• Barcode tracking systems: Inventory management systems that use barcode technology increase the accuracy and efficiency of managing inventories. These are perpetual systems, as the inventory is updated every time an item is scanned. All major retailers use barcode technology as part of an overall inventory management program. When a barcode gets read at the point-of-sale, inventory sales data are immediately read to a broader system that maintains usage statistics. The company’s purchasing department uses these data to make buying decisions based on sales and existing inventory levels.

Pros & cons:

They are fast & accurate, better decision making, reduced training time & labour costs. Labelling of barcodes can be time consuming & expensive process. If there are few business units the effort to implement the technology is not justified.

For the automotive supply company i would suggest barcode system because the other two systems are suitable for small business. As the company is operating in over 25 locations they are not considered to be a small business.