Requirements for modern inventory management systems.
Analysis of existing software in the market.
As it is known, inventory control consists of the following collection
of functions: plan, forecast, counting, analysis and regulation.
In accordance with this, in contemporary inventory management systems we should
find the following functions:
Each system of control must contain the
information about the motion of the goods for the goals of control. Accuracy
of the goods calculation is difficult to overestimate. Many systems do not
the adoption of correct solutions, because does not have precise data
about the stock in way and on hand.
The administrative solutions must be proposed
on the bases of demand forecasting. Since the opinion of the
specialists marketing or sales department is insufficient,
it must be used quantitative procedure, for example, the procedure of
the exponential smoothing. Opinion, nevertheless, can play its role in the
forecasts corrections in nonstandard circumstances.
3.Rules for solutions.
System must to contain the module for
developing solutions about the time and the quantities of the
ordered goods. And a system makes orders automatically on the basis of
the solutions taken .(using R or T policy).
4.Statements about deviations.
Statements can concern the situations,
when forecast does not reflect a real demand, when too big orders are formed,
when deficits have too significant, and so on.
5.Statements of effectiveness.
This module must ensure top management with
summary information about the effectiveness of inventory.
Too much value is usually given to the coefficient of turnover as to one indicator,
which brings to incorrect administrative decisions.
6.Assortment (and other external factors) optimization.
It is proposed
also this module in inventory management system. By its aid the system is capable
not only how much and in what moments to order, but also to select assortment
on the basis of their specific characters (prices, variation in the demand,
of delivery and so on). This module can also help to analyze changes in the
conditions of the suppliers (changes in procurement prices, the transportation
methods and so on).
Russian programs characteristics:
Suppressing majority of the Russian programs make summary and grouping
and produce information in those limited areas, giving information
about the volumes of sales, turnover, quantities in stock in the
days of supply, draw diagram. They really help to assume the
inventory control decisions, and also they help to sum up the results of inventory
Nevertheless, as the usual accounting software, they carry out only the ensuring
functions, and therefore they
relate the information- analytical systems class.
There is not demand forecasts, norms calculation and operative inventory
control in many programs
Sometimes they carry-out the so-called primitive forecasts, i.e. in
determining the order it is allowed that demand will be
equal the realization of past period.
Programs are characterized by the use of simplest
mathematical-statistical apparatus : addition, subtraction,
multiplication, summary, group and so on.
Calculation of factors. Usually, it is considered the
factor of average demand, sometimes, the time of delivery, and user must
consider himself the remaining factors. Demand Variation factor, price
differences of positions, the cost of delivery, the cost of circulating capital
are not usually considered in the systems, therefore they do not
contain optimum stock norms setting.
In the literature, the content of inventory management is revealed as answer
to the questions what,
how much and when to order. That is inventory management system itself must
reorder points and optimum quantity for the order for all the assortment
, therefore, it must provide complete automation of work.
The overwhelming majority of the domestic "inventory management systems" do
not give answers to these questions.
It is impossible to fully automate inventory management with them and the basic
solutions remain the problem of user.
Concerning procedure, it is necessary to say that we do not not go far
from the instructions the Soviet period, where safety stock was
recommended as 50% of the current stock (according to others sources -
There are nominally the fields for the minimum stock,
maximum stock in some programs , but they are not generated optimally by program
They are determined as assigned by the user quantity in days of supply.
Operational control is lead as follows: order is produced
when the need reaches the volume of railroad car, or after the given by user
, and stock is filled by the order up to user-settled maximum or in settled
by user quantities.
Sometimes systems use empirical approach to the determination of stock norms
(that is according to the experience). This trial-and-error method
or the simulation method for understanding probable figures relations for gaining
the inventory decisions.
It is studied the content of system by its external projections (factors and
results). The same concerns the methods, based on inventory forecasts according
to factors correlative forecasts,
so the ineffective past practice transfers to the future, and it is considered
time factor in inventory management in this case. This methods can be successfully
used in many spheres
but, in our opinion, it is necessary to use special exact analytical procedures
for inventory management. Like Wilson`s formula,
that gives one exact decision about optimal order quantity.
During working with different usual systems user will encounter different
norming and operative management question:
should I order if there is deficit for many items while many positions have
excess amounts and the total inventories in days of supply is still very big?
Should I order if only one or two positions are in deficit and, if yes, should
I fill the whole-truck-order only by those two positions?
Should the maximal stock for every item be equal in days of supply if there
is a difference in demand variations, margins, delivery time and cost?
Neither analytical software nor a specialist can give the answer to these questions
contrast to inventory management system.
Every real management has the purpose. Purpose of inventory management is
inventory, deficit and order cost minimization.
This purpose is external for many existing systems - and is preset only in
inventory manager`s mind.
For the conclusion, we want to say that the many developers wish to control
inventory deserves respect but
often, they improperly present their existing systems as inventory management
systems and extensively develop their tools making them more complex trying
more fields of firm`s economic activity.
SIMPLE-System is built on classical inventory management models with the use
of SIC(statistical inventory control) technology
. Based on past so-called independent demand, it sets inventory norms, determines
assortment, reorder time and quantities optimally, automatically and operatively
contains all the modules making all inventory management functions, counts
all necessary factors and purpose. Its price is quite shorter them the price
of MRP-systems, so the term of repay is only 15 days and it is
really simple in usage.