CHAPTER 2

REVIEW OF RELATED LITERATURES

The Existing Processes in the LM Auto Supply and Motor Parts

The current process of sales and inventory management of LM Auto Supply and Motor

Parts is the usage of the manual method wherein it can be inaccurate, unreliable and time

consuming. The present manual system has proven to be unreliable as stated by the owner, citing

some of the problem that they face, such as: loss of items, the amount of time the manual process

consumes, loss of profit and even legal problems when receipts and transaction records with

suppliers were lost.

The current system employs the use of log books to record sales and transactions, and

folders to keep receipts and transaction records with suppliers, and also lists to write down item

that need restocking or new orders to be made to the suppliers. The business has been running

with this simple method of sales and inventory management for almost 10 years, but simple

doesn’t seem to be very effective in this case as this manual system has been problematic for the

owners. The arduous task of keeping track of hundreds and thousands of stocks and tracking

incoming, outgoing and critical level items prove to be difficult when done manually.

According to Nicky Lamarco (2019) Inventory management is the set of practices that seek

to achieve the goals of having the right products available in the right quantities and at the right

time. The best kind of inventory management is the kind that helps you to streamline the whole

process and track your inventory in real time.

 According to Kate McFarlin (2019), a good inventory management system should be able

to: 1.) Improve cash flow and reduce costs. 2.) Track your stock in real time. 3.) Help foresee

future demands for products. 4.) Help prevent shortages in products. 5.) Help prevent excess. 6.)

Able to optimize employee time and warehouse management. 7.) Offer quick inventory

checking.

The previous two paragraphs mentioned the core capabilities of a good inventory

management system. The researchers aim to incorporate these capabilities into the design of their

sales and inventory management system.

According to Mary Jane (2017), some of the difficulties faced in a manual sales and

inventory system are the following: (a) Poor Communication. Each and every employee must

have knowledge of everything that happens in the business processes, failure to relay important

things such as running out of stock or new orders being received or payments being made could

cause big problems to the business. (b) Physical Inventory Counting. A manual inventory system

does not provide any number, all numbers from the inventory are gained through physical

inventory counts. (c) Purchases. Keeping track of purchases and orders can be a difficult task, as

one employee may lose the list of items sold or another may forget to write down a sale. (d)

Ordering Supplies. A manual inventory system does not update at the end of the day with

updated inventory counts. This means they must go through the inventory items each time they

need to place an order for new raw materials, products or supplies for the inventory.

In the previous paragraph, Mary Jane discussed the disadvantages of the current manual

sales and inventory system. These flaws and weaknesses of the current system will be improved

upon by the researchers in designing the computerized system proposal.

 According to K.A. Francis (2019) a manual inventory control system is: 1.) Susceptible to

theft or loss – a terrifying and time-consuming prospect for any small business, which must then

backtrack and rebuild 2.) Prone to human error, which can trigger a domino effect, from

inaccurate inventory counts to botched customer orders 3.) Incapable of tracking losses and

thefts 3.) Probably not a long-term option for a small business that is steadily growing, adding

new suppliers and products every year.

In the previous paragraph K.A. Francis mentioned the disadvantages of using a manual

system. The researchers aim to solve or at least minimize the effects or possibility of committing

the errors that are likely to happen when using a manual system.

Manual inventory systems are thought to be a way of the past, but even with all this

technology, manual inventory systems still hold key advantages over computer-based

counterparts. According to Jonathan Lister (2017), sometimes eyesight is better, automated

inventory systems are prone to glitches and errors. A manual inventory system allows business

owners and employees to physically verify that inventory is available. This removes the potential

for data entry errors, which can lead to disappointed customers. Cost and time are also an

advantage for manual inventory systems. A manual inventory system can cost as little as a sheet

of paper and a pencil. Manual accounting for inventory also saves time, since a business owner

doesn’t have to scan items into an automated system so they can be read and deducted from a

computerized inventory when sold, and saving time also saves money. Computerized inventory

systems are also at a disadvantage when it comes into power failure and tampering. A manual

inventory system is impervious to power failures that take down automated inventory systems.

Manual inventory systems are also more difficult to tamper with because the items are physically
counted. An automated system can be tampered with to artificially reduce inventory to enable

theft.

Despite the disadvantages of the current manual sales and inventory system mentioned by

Mary Jane, Jonathan Lister explained the advantages of using the current manual sales and

inventory system. These advantages will be kept in mind and be incorporated with the proposed

computerized system by not relying too much on the technological aspect and still applying a

manual and personal approach in doing tasks.

According to M.T. Wroblewski (2020) using manual method on inventory system has its

advantages, namely: 1.) Involves little cost. Your ledger, stock book and pen (or pencil) are all

you need to get started. 2.) Requires minimal training. 3.) Represents a model of simplicity.

Some people may say that manual systems are overly simplistic – static in nature – but unless

they're lost or misplaced, they are reliable. Also, they're usually easy to read and interpret.

Adding to this, Dana Griffin (2019) said the fundamental goals of any inventory control system

are to control costs and reduce them where you can while improving profitability.

In the previous paragraph M.T. Wroblewski mentioned the advantages of using a manual

sales and inventory system. The researchers will try to implement the advantages of a manual

system into the design of their computerized sales and inventory system such as the simplicity,

minimal training requirement and the low cost of operation therefore increasing profit.

According to Jennifer VanBaren (2019), companies with inventory use one of two

common methods to account for that inventory: the periodic method or the perpetual method.

The periodic method records all inventories into one account, where they remain until a physical

inventory count is taken. When this occurs, the inventory account is credited for the difference.
The perpetual method is a computerized method that records all inventories when they are

purchased, and as they are sold the inventory gets credited out of the account immediately.

In the previous paragraph, Jennifer VanBaren explains the two methods of doing

inventory. The owner of LM Auto Supply and Motor Parts will have to choose which method he

prefers and which one is best in managing their business.

According to Tyler Lacoma (2017), inventory systems are designed to help a business

keep track of its merchandise, including where it is stored and how it is sold. Inventory moves in

a complex cycle between manufacturers, storage rooms, shelves and consumers. Some inventory

that does not sell must be discarded, while inventory that does sell well must be re-ordered at the

right time to minimize to storage costs but meet demand. Businesses use a number of different

tactics for inventory control, which have steadily advanced with inventory management

technology.

In the previous paragraph, Tyler Lacoma discussed that inventories need to be controlled.

This helps in the designing of the computerized sales and inventory system proposal by giving

the researchers an idea of how to control inventory. The researchers will have to implement a

feature that produces reports on product sales and the pace of the flow of goods in the business.