Inventory management is managing goods from sourcing and production to selling to the end parties where supply chain management (SCM) is primarily related to transfer of goods, information, and products between different members of the supply chain, including the supplier, manufacturers, wholesalers, retailers, and finally the consumers.
Nowadays, most supply chain executives are aware of the various risks that are involved in managing inventory but are usually not well-equipped to deal with them. Most of these risks come up due to immense pressure to upgrade bottom-line, eliminate duplication of supply chain inventory management, reduce waste, and increase productivity.
Risks in SCM are classified into two categories: Unsystematic risks and Systematic risks.
Unsystematic risks come up due to factors that are within the internal control of the organization. In contrast, systematic risks surface due to environmental factors that are not within the control of the organization.
Following are the various reasons that cause these inventory and supply chain management risks to surface and hamper the effectiveness of the company’s supply chains:
- Environment Risk: As all businesses operate in a common environment, they are highly susceptible to any sort of change in environmental factors, such as national cultures, legal and political frameworks, and prevailing competition in the market.
- Industry Risk: Any significant change in technology and production of cheap substitutes in the market can cause the industry risks to surface and leave impacts on the industry’s entire structure.
- Organization Risk: Significant changes in culture, leadership, structure, technologies, people, and processes of an organization also come with their own risks, each of which should be handled uniquely.
- Domain-Specific Risk: Strategic planning by the top management officials is exposed to high risks and pay-offs that can affect the business in the long-term.
- Decision-Making Risks: Every single activity of a supply chain involves a decision-maker whose decisions and capabilities have a significant effect on any company’s supply chain performance.
Thus, to ensure inventory management’s success and to tap the maximum business value of inventory and supply chain management, any inventory control manager must understand all the risks involved and their sources.
IT or Information Technology involves extensive use of computer programs to avail, manipulate, and store information. Recent advances in the field of IT has enabled the businesses to effectively coordinate and manage their primary supply chain activities and cut-down the costs to the lowest possible level. The growing rate of IT has drastically brought down the total cost of availing information. Inventory management and SCM in IT operates on an integrated model featuring bi-directional flows of information and reverse material accommodation. Improvements in SCM and advances in IT can be correlated well with each other, increasing the number of efficient virtual supply chain models.
Inventory management in IT, however, does not only relate to the application of computers. It also involves extensive use of communication technology, hardware, factory automation, equipment for data recognition, and other related services to tap the business value of supply chains.
In an IT framework, anyone and everyone involved in the organization’s supply chain can access the required information pertaining to changes, delays, and new products, and remain integrated with each other through intranets or web-based technologies. IT, if used properly, can thus help in enhancing the efficiency of overall inventory management and reducing the risks and costs involved in the process.
A large financial impact is created by IT on an organization’s inventory management and supply chain. Therefore, executives should attempt to leverage technology to develop distribution models that are cost-effective.
As an example, shipping costs can be cut down significantly by implementing a system of receiving payments and orders electronically. Thus, if inventory management is successfully woven into IT, all the sales and distribution challenges can be taken in hand readily, thereby reducing costs and increasing profits for the business.
However, with the up-gradation of different systems, it is now easier to minimize inventory and supply chain management chances.