Inventory management forms the heart of all the manufacturing and allied activities – procuring the raw material, converting it into the final offering by the firm, determining optimum stock levels, and reorder quantities. The optimum level of inventory, at a given point, avoids under- and over-investment of funds and resources. An efficient inventory management system is crucial to saving firms from stock-shocks and losing customers.
Role of RPA in Inventory Management
Inventory management includes a series of repetitive tasks across various departments with a mostly transactional nature. Automating, with better coordination among the various departments, reduces redundancy, duplication of work and saves time and effort.
With automation of inventory management, oversights in determining optimum reorder levels, quantities, and delays are eliminated. An automatic system continuously monitors the stock levels, provides day-to-day data on usage rates of various stock items, notifies, and orders when the levels go below the safety-mark.
It analyzes the average daily consumption of raw-materials and adjusts the reorder levels according to the market demand. It determines an optimum stock level by regularly calculating turnover ratios and time period.
Increased levels of transparency help the organization to rectify the stock levels at any time and evaluate present requirements. It is a stable system that gets updated continuously which makes it simpler and easier for the organizations to absorb market shocks and adapt to a dynamic external working environment.
How Inventory Automation benefits SMEs?
For SMEs, with limited free funds, an over-investment in inventory results in a huge opportunity cost as well as carrying and holding costs of the excessive stock. An under-investment, on the other hand, can distort the entire manufacturing process thereby not catching up with the market demand and ultimately losing its customers.
The SMEs, in their growth phase, manually maintaining and monitoring an increasing data on sales, finished goods, WIPs, raw materials, parts, and components, etc. is not an easy task, it more than often results in inaccuracies and mismanagement.
Integrating the inventory management automation system with the firm’s EPR eliminates the need for manual recording and stock-taking by developing a separate database for each of the stock and produce and updating the change in their levels as and when it happens.
How does it work?
It develops and maintains databases for different departments. The automation system keeps accessing the databases of different departments – sales, purchase, production- modifying the re-stocking levels according to the needs of the departments.
Once the stock levels are reduced below the threshold, the automation system kicks in the procurement process. It generates requirement details, sends it to the concerned department for approval, places the order for purchase, collects the invoice from the vendor, and updates the payables account.
The automation system, while ordering the stock, goes through and analyzes all the options available to the firm and identifies the lowest price at which the inventories can be re-ordered. It keeps on evaluating the various lag-periods to determine the time duration that is most cost-effective for re-ordering.
Market research shows firms that have adopted the automation system have effectively reduced their inventory processing time. The time taken for completion of each operating cycle is down by 20% and the entire inventory processing time has been reduced by 70-72%. It also reports, these firms have nearly zeroed the losses incurred due to delays and discrepancies in reorders. The firms with automation have reported zero line stoppages.
An automated inventory management system makes the firm more efficient and organized. Here is how it does it.
Eliminating Mundane Manual tasks:
The process of inventory involves many mundane manual tasks including stock-taking, making purchase orders, updating data on raw materials, finished goods, spare parts, etc., which are prone to human errors The automated system takes over these tasks, executes without any inaccuracies, and on time, and releases much of the human resource blocked in the process.
The process requires a lot of external and internal communication and coordination. The system is integrated with the operating system of the firm, it coordinates the demand and requirement for various inventories at various production and sales levels. Automation, also, communicates with the vendor, supplier, and end customers, resolve their queries instantaneously, and collects feedback.
Since automation is able to determine an exact stock level required to keep the business functional, it reduces over-stocking thereby cutting down on the warehousing and holding or carrying costs of the inventories. It also avoids under-stocking and hence, zero or negligible costs are incurred in terms of customer or goodwill loss.
Selecting the right seller:
An automation system thoroughly analyzes the various alternatives available to the firm and picks the seller that asks for the least price. It lists the vendors, gets quotations, matches the offering to the requirements of the firm, checks for hidden costs, if any, and selects the right seller to place the order.