The Logistics of Inventory Management

The Movement of Inventory

Supply chain management encompasses the movement of products or services through various organisations within the supply chain to reach the end consumer. The complexity of the supply chain varies depending on the industrial sector and the specific products or services involved.

Logistics refers to the movement of products, inventory, or services into (inbound), through (materials handling) and out (outbound) of an organisation and deals with the following elements of the supply chain:

• Inward transport (inbound logistics from suppliers).
• Receiving (goods in).
• Warehousing or stores (warehouse management).
• Stock control (inventory management).
• Order picking (order assembly).
• Materials handling (into, from and between processes).
• Outward transport (outbound logistics, delivering to customers).
• Physical distribution management (delivery to customers or consumers).
• Recycling, returns, and waste disposal (reverse logistics).
• Location (management of materials flows between the organisation's sites).
• Communication (management of inventory data and order tracking).

The function of logistics depends on how it is managed and organised within an organisation, and it may or may not encompass all the elements mentioned above. Logistics could also involve other aspects of the supply chain, such as purchasing or procurement. However, purchasing or procurement is a separate function that collaborates closely with logistics.

Electronic Point of Sale Technology

Ordering or purchasing the exact amount of inventory needed to fulfil daily orders originated in the farming industry, where food distributors aimed to reduce food wastage. Supermarket chains used electronic point of sale (EPOS) technology to order food products until 17:00 on day one for overnight delivery to the food distributors' sorting hub. The food inventory would then be sorted into distribution routes and delivered to the supermarkets by 08:00 on day two.

Various theories exist regarding the origins of cross-docking. However, cross-docking originated as a transport process when parcel services began handling the delivery of packages for the public. It involved collecting packages, bringing them to a central sorting hub, re-sorting them for delivery routes, and then delivering them to their final destination without storing them.

The hub was a covered location for unloading, sorting, and reloading vehicles. Cross-docking involves moving materials or customer orders through an organisation without physically storing inventory. The organisation manages customer sales orders and purchase order processing elements in a stockless operation.

Managed inventory is a crucial part of logistics within an organisation, enabling it to decouple the vagaries of demand from the fulfilment of customer sales orders. Inventory allows customer sales orders to be fulfilled within an organisation's customers' requirements.

It is a resource that will enable the "oil" on the conveyor belt movement of products or services to smooth the flow of goods through the organisation at minimum cost whilst achieving the highest levels of customer service.

However, the amount of inventory an organisation invests in is directly proportional to the level of customer service it can achieve. The higher the level of inventory, the higher the level of service that an organisation can achieve.

Inventory Control

If the amount of inventory is allowed to increase unchecked, the organisation's cash flow and profitability will be compromised to the extent that the organisation's commercial viability could be put at risk. The role of logistics is to manage the amount of inventory to maximise customer service while minimising the amount of inventory to protect the organisation's financial resources.

In managing the amount of inventory within the organisation, the logistics function manages the resources of inventory by:

• Creating an inventory policy that guides the purchasing function to manage the goods the organisation makes to maximise customer service through the minimum amount of inventory, thus reducing the costs of and capital tied up in inventory.
• Monitoring the amount of raw materials, parts, sub-assemblies, and finished goods by setting minimum, maximum, reorder points, and batch quantities to be purchased.
• Auditing the overall costs of inventory, such as capital tied up in stock, wastage through obsolescence, damages, pilferage, packaging materials used and the utilisation of storage facilities to reduce costs to a minimum whilst maximising the utility of stock.
• Administering stock levels to ensure that sales order processing and purchase order costs are minimised regarding the resources used to receive, store, and assemble customer orders. This includes minimising the inbound and outbound transport costs of transporting the inventory from the supply base to the customer.
• Controlling the receipt, storage, and picking of inventory to ensure the timely dispatch of customer sales orders so that customers receive their products or services within the time parameters that they have requested.
• Acting to maximise customer service to the mutual benefit of customers and the organisation, ensuring turnover, sales, and profitability levels are achieved and maximised to guarantee the long-term commercial viability of the organisation by creating a competitive advantage within the marketplace.
• Increasing the efficiency and effectiveness of the organisation's planning function by determining the size, batch quantities, and order paginations of the organisation's inventory to decrease handling, transport, and packing costs while increasing the “on time in full” (OTIF) delivery of sales orders to meet the customer's requirements.

Inventory management requires careful handling and supervision to optimise customer service levels and operational efficiency. This involves effectively managing the flow of materials into, through, and out of the organisation to minimise costs and the amount of capital tied up in inventory.

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