Inventory Management

Inventory management

Inventory management is defined as the process of specifying the size and placement of the stocked goods. It generally involves the process of monitoring the ordering and storage of items that a company uses in the production of the items which it will sell or utilize to earn a profit in some form. In the case of electric utilities, the term production is replaced by the supply of electric power and the process of inventory management refers to maintaining a stock of goods required to ensure a continuous supply of electricity to the consumers.
It is a good practice to adapt the process of inventory management as it facilitates the protection of a constantly planned course of supply/production against disturbance resulting from running out materials or goods randomly.

In addition to ordering, the storage, tracking, and insurance of inventories also costs some amount of money. Therefore, the scope of inventory management is not only limited to specifying the quantity and placement of goods. It is also concerned with the carrying costs of inventory, management of physical assets and resources, forecasting and evaluation of inventory, allocation of the required space for inventory, management of defective products and demand forecasting. Inventories or items which are not allocated and managed properly can create significant financial problems for a business. Mismanagement of assets can result either in an inventory glut (excess stock of inventories) or an inventory shortage both of which result in financial losses.

The process of inventory holding is simple and generally involves two steps. The first step is to identify and analyze the items that are to be stored or kept in stock. The second process is to determine the amount or volume of the items to be kept in stock. There are various factors which may determine the volume or quantity of the items to be kept in stock. it should be noted that the order quantity or order volume should lie between the maximum projected volume and the minimum projected volume.

There are many reasons for keeping goods or assets in stock. Some of them are described briefly as follows.

1. Time lags: Certain delay is always created when goods or products are ordered from the supplier. This delay is generally known as time lag and in order to avoid hindrance in the production process, in is a good practice to order the required materials many days in advance. Therefore, a certain amount of inventory should be maintained to compensate for the delay caused by this process.
2. Uncertainties in supply: Due to a certain degree of uncertainty in the supply-demand process, it is always a better practice to have spare materials in case of an interruption in the supply. Inventories can act as buffers to meet the uncertainties in demand and supply of goods.
3. Economies of scale: Use of one unit at a time when and where a user needs it tends to incur the losses of costs in terms of logistics. It is generally more cost effective to buy items in bulk than in units as the suppliers tend to provide reasonable discounts when items are purchased in bulk. However, it should be noted that only the required amount of items should be bought. Purchasing too many items can cause unnecessary loss and may result in business failure.
4. Smoothing seasonal demands: It is always a good practice to hold inventories in stock to meet a sharp demand for products. A common example of this reason is a sharp demand of items during festival seasons. It becomes difficult for the business ventures to meet the increased demands of items during festival seasons if additional inventory is not kept in stock.
5. Prevention from price fluctuation: Due to the ever present fluctuations on the market price of the inventories, business ventures often hold inventories in case the market price of the inventories rises. Therefore by having an efficient inventory management system, business ventures can control their inventory cost.

Items used in transmission and distribution system

A transmission and distribution system comprises of various items and components for its efficient functioning. These items may be large or small and their availability may vary according to their function and complexity. Some of the common items used in a transmission and distribution system are listed below.

1. Poles and stray sets
2. Conductors and accessories: ACSR cables, Insulators, Clamps, Cross-arms, Cable shoe, etc.
3. Protection devices: Fuses, Relays, Circuit breakers, Lightning arrestors, Control cables, etc.
4. Metering devices: Ammeters, Voltmeters, Wattmeters, Energy meters (KWh meters), Frequency meters, Current transformers, Potential transformers, etc.
5. Miscellaneous: Insulation tester, earth resistance tester, Fuse operating rod, Protective gears such as helmets, insulation gloves, safety belts, etc.

Factors affecting inventory management

There are several factors that affect the process of inventory management. Some of the important ones are described briefly below.

1. Availability of the items

   Availability of the items significantly affects the decision regarding the volume of items to be kept in stock. It is not necessary to keep a large amount of items in stock if they are readily and locally available. It is also advantageous to store a large volume of items if they can be purchased in bulk amount as it becomes economical. If locally available items conform to the standards required, it is not absolutely necessary to keep them in stock. On the other hand, if branded or some special items are required, it is a good practice to maintain a stock as they can cause time delay during the supply process. However, these items can be costly and it is important to consider the frequency of requirements and cost to decide on the volume of the items to be kept in stock.

2. Consumption trend

   This factor also affects inventory management significantly. If the consumption trend of an item is low, it is not necessary to store a large volume of that item in stock. However, if the consumption trend of the item is high, it is necessary to maintain an adequate stock of the item as mismanaged inventory storage can cause inventory shortage and a time delay is created when new items are ordered. it is also a good practice to maintain a reasonable amount of stock items if the consumption trend of the item is uncertain.

3. Cost of the item

   If the market price of the item is of constantly fluctuating nature, it is necessary to keep a reasonable amount of the item in stock. A business venture can control its inventory cost in case the market price of the item increases unexpectedly.

4. Lifespan of the item

   While deciding on a number of items to be kept in stock, it is absolutely necessary to take into account the life span and expiry date of the item. If the lifespan of the item is long, it becomes unnecessary and uneconomical to store a large amount of the item in stock.

5. Storage conditions

   The storage conditions of the items should also be considered while deciding on the quantity of the items to be stored. Some items require absolute storage conditions as specified by the manufacturer. It causes unnecessary loss if the items are stored in huge amounts in environments that do not conform to the storage needs of the items.

6. Miscellaneous

   One of the major miscellaneous factors that affect inventory management is the production process of the items to be stored. It becomes absolutely necessary to store a large amount of items that have a significant use but their production is likely to be discontinued in future. The other factor that affects an inventory management process is the financial status of the company. If the financial status of the company is not strong, it is uneconomical to store a large amount of items in stock by taking loans as the company will have to pay interest sums which will reduce its net income unnecessarily.

References

1. Investopedia. (2016). Inventory management.Retrieved fromhttp://www.investopedia.com/

Information from class notes and handouts provided by my subject teacher have also been used.