BUS300: Operations Management

Inventory management is an important aspect of enterprise management. The type of product your social enterprise sells will determine how you stock and distribute your inventory. Some businesses must keep surplus stocks on hand to minimize production delays and avoid shortages, particularly during high-volume sales periods like holidays. Those that sell perishable products must turn over inventory rapidly and keep precise records of how long each product has been stored to avoid spoilage. Natural peanut butter is such a product and because its oil separates within a few weeks of manufacturing, it cannot sit in a stockroom for long periods of time. Jam, on the other hand, has a shelf life of two years, so Chadèque and Grenadia can be stored and distributed when the raw material is no longer in season, which prevents disruptions in sales (and keeps customers happy). Another important factor is that holding inventory costs money. Unsold stock means that capital that could be used elsewhere in the business is tied up in inventory, which has repercussions for cash flow. Managing inventory in a social enterprise requires a delicate balance because finance usually wants inventory levels low while marketing wants ample sales stock on hand. Finally, good inventory management acts as a control system that prevents shrinkage, or loss due to theft.

INVENTORY FLOW DIAGRAM

Bin Cards

To the manager of a modern business, bin cards probably seem archaic, but for a social enterprise that are not auto- mated, they are a reliable and simple method of inventory management. Simply attach a card to the product indicating the batch or lot number and date the product is placed in the finished goods inventory. When marketing managers remove inventory for sale, they select it by date. Bin cards are particularly useful when managing perish- able items or seasonal products. They also serve to isolate lots or batches that have defects or have suffered damage. Bin cards are also used in accounting to record inventory valuation.

Tying inventory to sales and production is one method of projecting necessary inventory levels. Exhibit 6Z show an example of such a system. Sales and inventory plans are reconciled with actual figures and built into the MIS. This information is used as well for scheduling production. Ending inventory is subtracted from sales projections to deter- mine the amount that must be produced the following month.

EXHIBIT 6Z: MONTHLY SALES AND INVENTORY PLAN

Keeping Mamba inventory low is important to prevent the product from spoiling. Grenadia, on the other hand, can be stockpiled to sell during seasons when it is not produced

Production manager, inventory manager, production staff, clients, PO business advisor, marketing manager

Plotting An Inventory Management System for Your Enterprise

Answer the following inventory management questions:

• Who is responsible for managing inventory?
  
• What is the minimum level of inventory to be maintained at any one time?
  
• What is the minimum time needed to get raw materials from suppliers?
  
• What is the minimum amount of time necessary to produce goods ordered?
  
• What is the minimum time needed to distribute products to customers?
  
• What are the reasons for holding inventory (minimize production delays, maximize sales efficiency, avoid shortages, strategically place product on market during certain times of the year, respond to known demand, etc.)?
  
• What management information system does your social enterprise use? Manual or automated? How is inventory information linked to the MIS (see exhibit 6S, Information Tracking)?
  
• How is inventory management integrated with finance/accounting?
  
• How do you track inventory to avoid spoilage or overage?
  
• What steps do you take to reduce theft of inventory?
  
• What inventory control steps does your social enterprise use (such as MIS coupled with routine physical counts)?
  

Inventory Management System included in the Business Plan.

Production/Operations Financials

Rationale:

Operations and production costs are a major part of social enterprise expenses. Thus, delineating costs helps the social enterprise manager control them and set production targets that cover these costs.

Partner program manager, PO business advisor, production manager, financial manager, business manager

Facilities (Space)

• What is the condition of the facilities? Is there a need for major improvements? What type of improvements?
  
• Do you rent or own your building and/or plant? What are the costs associated with this?

Source: Sutia Kim Alter
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