GVC 2 Inventory Mangement Final

Inventory Management:
Maximizing Efficiency in Global

Inventory Management
Inventory Management:
Maximizing Efficiency in Global
Inventory Management
1
Inventory Essentials
Describes inventory levels and techniques for managing them
2
Reverse Logistics
Describes the process of recovering value from packaging and products post-consumer
3 The Circular Economy

Describes the circular nature of doing modern business
© 2017, 2020, 2021 FITT All Rights Reserved

Module Learning Outcomes
Upon successful completion of this module, the individual will be able to:
Build inventory systems through a strategic approach to control inventory levels and
1 financial risks when exporting and/or importing on a global basis.
Incorporate reuse and recycling practices into inventory management systems

2 through strategic reverse logistics processes and circular supply chains.
Examine current business model and supply chain practices to identify the potential
3 value of transitioning to a circular economy business model.

Reflect on Your Experience
Reflect on your past experience and answer
the following questions to the best of your ability.
1 How does Pareto’s law apply to inventory management?
2 How can backordering be used as a means of controlling inventory?
What are two features of a standardized, consumer-friendly, cost effective return

3 process?
What are three actions an organization can take to obtain additional value from
4 returned products?
One of an exporter’s products is recalled in the exporter’s country. What actions does
5 the exporter need to take for products exported to foreign markets?
6 How does a circular economy differ from reverse logistics?

Inventory Management: Maximizing Efficiency
in Global Inventory Management
UNIT 1
Inventory Essentials
◎ Financial Importance of Inventory
◎ Selective Inventory Management
◎ Managing the Product Life Cycle
◎ Inventory Tracking and Information Technology
◎ Planning Inventory Storage Locations
◎ Selective Inventory Management Strategies
◎ Problem Inventories
◎ Inventory Management Outsourcing

Why Is This Important?

Financial Importance of Inventory
Inventory Value Inventory Storage Systems

o Average inventory value o Minimizes disruptions
o Inventory carrying cost o Allows for tracking and monitoring
o Lost sales cost o Makes best use of available space
o Total policy cost o Meets inventory storage requirements
o Establishes storage locations
Demand o Maintains product traceability
o Annual demand
o Forecast annual demand
o Lead time
o Lead time demand

Selective Inventory Management
Types of Inventory
Raw Finished Work in Progress Service, Repair,

Consumables
Material Product (WIP) Replacement
Items used to Product ready for Items in the process Items used for After-market items
produce the sale and of being converted, maintaining the used to maintain
finished product consumption processed, integrity and the functioning of
assembled or functioning of the existing goods
manufactured plant or operation
Service Pipeline Contingency Safety Efficient
Inventory Inventory Inventory Stock Procurement
Inventory
Inventory to ensure Product in transit Inventory to ensure Inventory to ensure Inventory for
reasonable delivery between against unusual and adequate supply special
time manufacturer and catastrophic events until arrival of new opportunities to
customer sites stock procure supplies at
low cost
Adapted from TABLE 1.1

Inventory Levels
Backorder Net Inventory

o Customer request for inventory not
On-hand stock
immediately available
+ Purchase Orders
Net Stock + Pipeline Inventory
o The amount of inventory in storage
- Back Orders
On-hand Stock Dead Stock

o Net stock, minus product back orders
o Inventory not used for a period of
time (e.g. design change, past before
Stock Out date)
o Insufficient stock to meet demand o Typically enters reverse supply chain

Inventory Analysis
Inventory Classification System
Based on…
A-class items move out of inventory faster, and
ABC Consumption value
should be placed near ‘point in use’.
Opportunity costs of Inventory items classified as Vital, Essential or
VED shortages Desirable.
Fast moving = high demand; Slow moving =
FSN Frequency of demand
infrequent demand; Non-moving = dead stock
Government controlled; Outside vendor; Local
GOLF Source of supply
vendor; Foreign
Value of inventory held
XYZ for disposal
Waste or dead stock
Used to identify alternatives to high-cost

HML Unit cost
components

Inventory Models
System Definition
Single period Balancing trade-off associated with insufficient order and
ordering ordering too much when supplies are purchased one time
When inventory requires constant instantaneous replenishments;
Static inventory
assumes no shortages
Replenishment Ordering is based on demand. Different models require different

models levels of inventory monitoring. For example: labour, fixed
replenishment, continuous review, periodic review
Economic order A means to determine how much to order while minimizing
quantity holding, ordering or set up costs
Visual inventory Visual cues, such as bins with level lines, indicate when inventory
model needs to be replaced

Inventory Control Techniques
ABC analysis Cross docking

Backordering Drop shipping
Bulk shipments Just-in-time (JIT)
Consignment inventory Vendor managed inventory (VMI)

Managing the Product Life Cycle
Four Main Stages of a Product Life Cycle
• New product first made available

1 Launch
• Few customers, competition is low, sales low, risk high
• Product demand grows, sales start to rise

2 Growth
• Safety stock, reordering points used to optimize cost model
• Well established or saturated demand; growth slows down/levels off

3 Maturity
• Begin to lower inventory levels, with careful monitoring of demand
• Sales fall as demand decreases, often due to competing products

4 Decline
• Actions taken to reduce stock levels to avoid having obsolete stock

Inventory Tracking and Information Technology
Enterprise Resource Planning (ERP) System
o Integrated purchasing and manufacturing system (e.g. materials resource planning)

o Distribution system (e.g. distribution requirements planning)
o Integrated financial package
o E-commerce or electronic data interchange (EDI) capacity with suppliers and customers
o Bar coding and RFID tags in warehouses and factories
o Online inventory management
o Online transportation data from carriers

Inventory Tracking and Information Technology, Continued
Electronic Data Interchange (EDI) E-Commerce

o International standard computer system that o Conducting business operations
allows company-to-company electronic using the Internet
exchange o Advantages: market access and
o EDI = quicker communication, improved competition, improved
science, reduced paperwork, faster recognition communications, real time access to
sales data, reduced costs
Stock Control System Barcoding and RFID Tags

o Computer inventory system to manage and o Barcodes contain product
locate raw materials, components and finished information
goods o RFID tags emit radio frequencies
o Provides detailed information on what has detected by reader or sensors up to
sold, how quickly and for how much 100 metres away

Selective Inventory Management Strategies
Improving data collection Avoiding economies of scale
o Know where inventory is, lead o Purchasing should match demand for
times, where cuts can be made product
o Establish good counting system
Using hedge inventory
Reducing lead times o Forecast what is necessary to manage
o Investigate faster ways to get inventories and mitigate risks
products to customers o Keep levels aligned with product
demand
Increasing production speed

o Work with less inventory to meet Basing inventories on market
demand by getting goods faster demand
from manufacturer o Pair forecast with market demand

Selective Inventory Management Strategies, Continued
Using partnerships
o Work with supplier partnerships,
e.g. share information
Having a quick response

o Collaborate with retailers to minimize
inventory

Problem Inventories
Process to Assess Problem Inventories & Limit Impact
1 2 3
Define the Determine value for Develop auditing &
problem each category reporting procedures
4 5 6
Establish inventory Plan and schedule
Create short-term
levels as standard disposal of problem
cure
measurement stock
7 8 9
Determine causes of Develop long-term
Look for problems
problem cure

Inventory Management Outsourcing
3PLs are an alternative to the in-house management of inventory.
3PL firms can analyze current inventory management practices and

find ways for organizations to find cost savings throughout their
forward supply chains.

UNIT 2
Reverse Logistics
◎ Establishing Product Return Systems

◎ Processing Returns
◎ Using Centralized Collection Centres
◎ Outsourcing Reverse Logistics
◎ Developing Recall Plans
◎ Managing Recalls


Reverse Logistics
Linear Supply Chain
FIGURE 2.1

Circular Supply Chain
FIGURE 2.2

Establishing Product Return System
Negotiating, developing and implementing the means for repair,
refurbishment, recycling or disposal.
Considerations that inform policies and procedures:

o Organizational priorities or goals
o Compliance with legislation or regulations
o Activities or strategies to address needs and minimize risks
o Current capacity or abilities, and return strategies

Establishing Product Return System, Continued
Policy on Returns The Cost of Returns

o Financial reconciliation
o Shipping or transit for return items
The Secondary Marketplace o Warehousing and receiving of returned
Consumers will get rid of goods they goods
o Training
no longer use by:
o Reselling goods on websites
Best Practices
o Donating goods to non-profit o IT-driven tracking procedures
organizations o Improved handling for ‘controllable
o Taking goods to recycle depots returns’
o Putting goods in garbage o Standardized returns and authorization
process
o Customer relations and service for
See Figure 2.3 – Product Flow returns
to Secondary Markets o Asset management

Processing Returns
Reasons for Product Returns
Buy-outs Clerical Errors Close-outs
Damaged or Defective or Inferior

Job-outs
Deteriorated Goods Quality
Non-defective Recalls and Safety

Salvage
Defectives Issues
Warrantee Claims and

Overstock / Surplus
Repairs

Processing Stages
Authorization of returns
Transportation of returned product
Inspection and sorting of returned product
Financial compensation for returns
Selection of appropriate action for returns
o Repair and return
o Return to retailer’s inventory
o Return to supplier’s inventory
o Reuse actions

Using Centralized Collection Centres
Centralized return centres enhance efficiencies by:

o Return procedures are simplified
o Returned products managed from one location for greater control
o Inventory control is more efficient
3PLs
o Quality issues are easier to detect Third party logistics
o Management of returned goods is easier providers
3PSP
Third party service
providers
4PLs
Fourth party
logistics providers

Outsourcing Reverse Logistics
Reverse logistics include a wide variety of services:
o Return centre operations o Credit Reconciliation
o Return-to-vendor management o Repackaging/restocking
o Product recall management o Repair/refurbishment
o Product inspection o Product recycling
o Product sorting o Website portal for customer return
initiation

Outsourcing Reverse Logistics, Continued
Single entity overseeing reverse Organizations benefit:

logistics provides: o Access to secondary market
o Faster returns processing o Reduced inventory
o Fewer hand-offs and touches o Increased asset recovery
o Greater ease of communication o Improved retailer-vendor relations
o Improved product visibility o Managed policy and vendor agreement
o Greater control compliance
o Improved customer experience
o Tracking of reasons for product returns
o Lower infrastructure costs

Developing Recall Plans
Purpose of a recall:
o Minimize risk of injury or death to consumers

o Retrieve as many defective products from marketplace as possible
o Minimize cost and inconvenience to consumers
o Minimize impact to brand and corporate image

Recall Plans
Plans are based on a comprehensive analysis of risk, and require a
comprehensive communications plan.
Plans must contain explicit information on the requirements for tracking
products.
Organizations must be compliant with inventory traceability policies and
procedures, for example:
o Items in containers require labels with specified information
o Livestock must be tagged and may require radio frequency identifiers or tattoos
o Raw materials require detailed tracking systems

Recall Plans, Continued
Plans must describe system for tracking recalled products.
Distribution records must contain complete information on the client.
Recall plans identify authorities responsible for regulating recalls.
Plans identify regulations and requirements
Designated Recall associated with:
Management Team
o Communications
Select, qualified personnel o Collection, disposal, reimbursement
to handle the recall,
dissemination information o Recall evaluation
and implement plans for o Documentation
corrective and preventive
measures.

Managing Recalls
Product Recall Process Example
FIGURE 2.5

Product Recall Process, Continued
FIGURE 2.5

Conduct Hazard Assessment
Questions that focus on risk assessment:

o What is the nature of the risk?
o Is the risk obvious to the consumer?
o What population is exposed to the product and its risk of injury?
o Are there adequate warnings or instructions?
o Is there reasonable risk from injury from misuse of the product by the consumer?

Conduct Hazard Assessment, Continued
Monitoring product performance:

o Patterns and conditions of the defect
o Number of defective products
o Severity of risk
o Likelihood of injury

Manage Recall Actions
Essential activities of a product recall:

o Isolating defective products
o Tracking distributed products
o Identifying source of problem and action to be taken
o Implementing communications plan
o Implementing action for compensation
o Treatment of recalled products
o Following up and monitoring results of recall action

UNIT 3
The Circular Economy
◎ Circular Supply Chains

◎ The Sharing Economy
◎ Waste Management
◎ The Circular Economy


Circular Supply Chains
Influenced by international regulations and new

environmental practices:
o European Union Packaging Directive

o Japanese recycling laws
o California recycled content laws
o UK Landfill Directive

Circular Supply Chain
Source: Philips, ‘Recycle’ FIGURE 3.1

Waste Management
Life Cycle of Level Ground Trading’s
Compostable Coffee Package
Legislations forcing organizations to

become responsible for their waste.
Organizations starting to move

beyond public waste management
programs and starting to collect
their own waste.
Source: Level Ground Trading, ‘Compostable Packaging’ FIGURE 3.2

Restorative and regenerative
• Aims to keep products, components and materials at highest utility and value
An alternative to a traditional linear economy

• Resources are in use as long as possible, extracting maximum value
Making More
with Less
One that is waste-free and resilient, e.g.
Innovation
• Resources to generate value, not just financial value
Collaboration
• Support for cohesive and healthy societies
Waste reduction
• Resources that can be cycled infinitely
Reuse and recycling
Regenerating
ecosystems

Foundations of the Circular Economy
Cradle to cradle Biomimicry

o Hazardous materials minimization o Nature as model
o Eco-friendly packaging materials o Nature as measure
o Reducing packaging materials o Nature as mentor
o Reusing materials Industrial ecology
o Energy efficiency
Blue economy
Performance economy
Regenerative design
o Product-life extension
o Long-life goals
o Reconditioning activities
o Waste prevention

Drivers for the Circular Economy
Economic loss and structural Advances in technology

waste Acceptance of alternative
Price risks business models
Supply risks Urbanization
Degradation of natural
systems
Regulatory trends

Circular Economy Value Creation
PRINCIPLE
Preserve and enhance natural capital by controlling finite stocks and
1 balancing renewable resource flows
PRINCIPLE Optimize resource yields by circulating products, components and
2
materials at the highest utility at all times in both technical and
biological cycles
PRINCIPLE
Foster system effectiveness by revealing and designing out negative
3 externalities

Source: Ellen MacArthur Foundation
FIGURE 3.3

The Circular Economy, Continued
Source: Ellen MacArthur Foundation FIGURE 3.3


Approaches to Circular Business Models
Understand how resource efficiency fits • Does your current business strategy
your overall business strategy consider resource efficiency?
• Where are your main opportunities to save
Understand the current situation; money and generate revenue?
Review current performance • How susceptible is your supply chain?
• Where do your materials come from?

Identify potential areas for improvement
• Do you have your energy costs under
control?
• Can your organization generate its own
Develop resource efficiency energy?
improvement program • How do your actions impact resource
efficiency?
Implement resource efficiency • Could energy procurement improve your
improvement initiatives resource efficiency and brand image?
Monitor and evaluate resource • How do you maintain an ongoing focus

efficiency improvement on the resource efficiency?
FIGURE 3.4
ReSOLVE Framework
REgenerate
Share
Optimize
Loop
Virtualize
Exchange

Approaches to Circular Business Models, Continued
Circular economies are surfacing as means to transform the

economy due to four key factors:
Numbers have been crunched

Changing nature of consumers
Proliferation of breakthrough technologies
Mobilization of ideas

Enabling the Transition to the Circular Economy
Education
Financing
Collaborative platforms
New economic framework
Updated legal framework
Materials and design standards

FINAL CHECK Test your understanding on the knowledge, skills and concepts
presented in this module and practice for other FITT assessments.


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Inventory Management:

Maximizing Efficiency in Global

3 The Circular Economy

© 2017, 2020, 2021 FITT All Rights Reserved

Incorporate reuse and recycling practices into inventory management systems

© 2017, 2020, 2021 FITT All Rights Reserved

1 How does Pareto’s law apply to inventory management?

2 How can backordering be used as a means of controlling inventory?

What are two features of a standardized, consumer-friendly, cost effective return

6 How does a circular economy differ from reverse logistics?

© 2017, 2020, 2021 FITT All Rights Reserved

© 2017, 2020, 2021 FITT All Rights Reserved

© 2017, 2020, 2021 FITT All Rights Reserved

Inventory Value Inventory Storage Systems

© 2017, 2020, 2021 FITT All Rights Reserved

Raw Finished Work in Progress Service, Repair,

Adapted from TABLE 1.1

Backorder Net Inventory

On-hand Stock Dead Stock

© 2017, 2020, 2021 FITT All Rights Reserved

Used to identify alternatives to high-cost

© 2017, 2020, 2021 FITT All Rights Reserved

Replenishment Ordering is based on demand. Different models require different

Adapted from TABLE 1.3

© 2017, 2020, 2021 FITT All Rights Reserved

ABC analysis Cross docking

© 2017, 2020, 2021 FITT All Rights Reserved

Four Main Stages of a Product Life Cycle

• New product first made available

• Product demand grows, sales start to rise

• Well established or saturated demand; growth slows down/levels off

• Sales fall as demand decreases, often due to competing products

© 2017, 2020, 2021 FITT All Rights Reserved

Enterprise Resource Planning (ERP) System

o Integrated purchasing and manufacturing system (e.g. materials resource planning)

© 2017, 2020, 2021 FITT All Rights Reserved

Electronic Data Interchange (EDI) E-Commerce

Stock Control System Barcoding and RFID Tags

© 2017, 2020, 2021 FITT All Rights Reserved

Increasing production speed

© 2017, 2020, 2021 FITT All Rights Reserved

Having a quick response

© 2017, 2020, 2021 FITT All Rights Reserved

© 2017, 2020, 2021 FITT All Rights Reserved

3PLs are an alternative to the in-house management of inventory.

3PL firms can analyze current inventory management practices and

© 2017, 2020, 2021 FITT All Rights Reserved

◎ Establishing Product Return Systems

© 2017, 2020, 2021 FITT All Rights Reserved

© 2017, 2020, 2021 FITT All Rights Reserved

© 2017, 2020, 2021 FITT All Rights Reserved

© 2017, 2020, 2021 FITT All Rights Reserved

Considerations that inform policies and procedures:

© 2017, 2020, 2021 FITT All Rights Reserved

Policy on Returns The Cost of Returns

© 2017, 2020, 2021 FITT All Rights Reserved

Buy-outs Clerical Errors Close-outs

Damaged or Defective or Inferior

Non-defective Recalls and Safety

Warrantee Claims and

Adapted from TABLE 2.1

© 2017, 2020, 2021 FITT All Rights Reserved

© 2017, 2020, 2021 FITT All Rights Reserved