Inventories: essence, reasons behind their necessity, assessment of the influence of factors on the dynamics of their change
Topic 13. Inventory management.
Types of stocks. Factors influencing the amount of reserves.
Inventories represent a significant portion of the working capital of any business and therefore entail a large amount of capital investment, which is why it is so important that inventories are managed effectively and that capital investments in them do not become unreasonably large.
In the process of determining inventory requirements grouped in the following way:
productive reserves(stocks of raw materials and materials necessary for the production of products);
stocks finished products , designed for its uninterrupted distribution to consumers.
The need for reserves of each type is determined separately by the following groups:
1) current storage stocks(they represent a constantly renewed part of inventories, formed on a regular basis and evenly consumed during the production process or sale to consumers);
2) seasonal stocks(the formation of such reserves is due to seasonal characteristics of the production and purchase of raw materials, as well as seasonal characteristics of the consumption of finished products);
3) stocks intended purpose (the formation of such reserves at an enterprise is determined by the specific goals of its activities, for example, for organizing countertrade when purchasing certain raw materials: shoes when purchasing hides; sugar when purchasing sugar beets; sunflower oil when purchasing sunflower seeds, etc.).
Among these groups of inventories, the main attention should be paid to determining the need for current storage stocks (in most enterprises they represent the only type of inventories).
There are many reasons, according to which firms go to create inventories. The main argument is the need to maintain the production process. With absence required stock the company may suffer large losses.
There are other reasons for creating stocks: for example, seasonality, i.e. Only during a certain season can products be delivered to the consumer. In turn, the prices of raw materials used by manufacturers may be subject to significant seasonal fluctuations, and when the price is low, it is beneficial to create sufficient reserves of raw materials that would last for the entire season of high prices and which could be used in production.
Negative consequences maintaining large reserves:
1) storage costs
2) the money invested does not generate income
Inventory management as a factor in profit growth
The formation and maintenance of industrial reserves is always associated with the need to find optimal ratio between two extreme strategies: the first implies inventory minimization in the hope of their rhythmic delivery, the second - creating a sufficiently large stock , which aims to insure against various surprises and certainly ensure the rhythm of the production process. In addition, when choosing a policy regarding inventories, one has to take into account the presence of two types of risk: a) unfavorable price changes; b) moral and physical obsolescence of material reserves.
Optimal inventory management techniques are based on the idea of minimizing two types of costs, which certainly takes place in relation to inventories:
A) order fulfillment cost(ordering, goods acceptance, warehousing, delivery; control)
b) inventory holding cost(warehousing, risk of inventory illiquidity, lost profits).
In a market economy, ordering a large batch of raw materials is usually accompanied by receiving a discount from the supplier. In addition, the larger the ordered batch of raw materials and supplies, i.e., the less often you have to contact suppliers, the lower the purchase and delivery costs. However, in this case, storage costs increase: additional warehouse space is needed, natural loss and other undocumented expenses increase, etc.
Conversely, if an enterprise prefers to work “on wheels,” that is, it focuses on a minimum supply of raw materials, it minimizes storage costs, but increases purchasing and delivery costs. In other words, there are pros and cons to each of the strategies described, and the optimal policy in inventory management is precisely to find a compromise between these two types of costs.
The task of the financial manager: finding a level of inventory that would minimize the total cost of holding inventory.
For this purpose they are used various models inventory management, which allows you to determine the optimal amount of inventory for each item.
As is known, the solution of any optimization problem inevitably involves the identification of a target criterion. In the case of reserves, this criterion is, therefore, costs associated with maintaining inventories and consisting of two components: inventory holding costs and costs for placing and fulfilling an order.
Obviously, as the average size of inventories increases, storage costs also increase; explanations for this can be both specific and general. In particular, the larger the delivered batch of supplies, the greater the volume of warehouse space required for their storage, the cost of electricity increases, the natural loss increases, etc. If we abstract from the details, we can remember that any asset cannot exist on its own - it corresponds to some source of financing, most often not free. Therefore, an increase in the assets of an enterprise, in particular inventory, is usually accompanied by an increase in the costs of maintaining relevant sources of financing.
Unlike storage costs, which are directly dependent on the average size of inventories, the costs of placing and fulfilling orders behave differently: most often the relationship is in the opposite direction. Explanations again can be different: there is no need to use the services of transport organizations once again, transport is used more optimally, you can get a discount when ordering a large batch, etc.
For example, costs such as postage or long-distance telephone costs, equipment set-up and lot acceptance, as a rule, do not depend on the size of one lot
So, both components of the total costs associated with maintaining inventories vary in inverse proportion to each other, so it is possible to find, at least theoretically, the average inventory value that corresponds to the minimum level of these costs.
The easiest way to visualize the logic for identifying the optimal order batch is graphically.
rice. 1 Determination of the optimal order quantity
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Rice. 1.4. Dependence of inventories on costs and size
Also, the presence of stocks of finished goods with increased demand or the correct calculation of seasonal fluctuations, which makes it possible to constantly and fully ensure production, will allow the enterprise to realize a larger volume of sales, increase its market share, which will have a positive impact on the entire financial economic activity enterprises.
The main reasons for creating inventories are:
1) the possibility of violating the established delivery schedule (negative consequence - stopping the production process);
2) the possibility of fluctuations in demand (negative consequences - unsatisfied demand, loss of profit, image);
3) seasonal fluctuations in the production of certain types of goods with relatively uniform consumption, for example, harvesting and consumption of potatoes (the consequence is the need to accumulate goods for subsequent even distribution throughout the year);
4) the possibility of uniform execution of production and distribution operations (the presence of stocks of finished goods smooths out fluctuations in the intensity of production, the result is uniform distribution of goods; the presence of industrial stocks smooths out fluctuations in the supply of raw materials and semi-finished products, the result is uniformity of the production process);
5) discounts for purchasing large quantities of goods; the possibility of making a profit through speculation in anticipation of a sharp increase in prices for goods;
6) costs of placing an order: searching for a supplier, conducting negotiations, business trips, long-distance negotiations, etc. (the consequence is the need to increase the ordered batch, and therefore the stock);
7) the need for immediate customer service (to issue goods from inventory faster than to produce or purchase, which increases the competitiveness of the enterprise);
8) minimizing production downtime due to lack of spare parts (especially for enterprises with a continuous production process);
9) simplification of the production management process (the presence of production inventories allows reducing the requirements for the degree of consistency production processes, which reduces the costs of organizing the management of these processes).
However, the availability of inventories is always associated with costs, which characterizes negative side stocks. Inventory maintenance costs include:
Frozen financial resources that could be used for investment and innovation;
Remuneration of special personnel;
Costs of storage and maintenance of warehouses;
Loss of part of the inventory due to the constant risk of damage, theft and obsolescence of inventory;
Packing costs, insurance, taxes, incidentals.
Running out of inventory also comes with costs. These are losses from production downtime, purchases in small quantities at higher prices, and the lack of finished goods, which are in high demand.
Thus, the negative impact of the presence of inventories in an enterprise is that:
1) the formation of large orders is associated with the occurrence of opportunity costs (lost profits due to the abandonment of alternative areas of resource use);
2) additional costs arise for storage, transportation, and insurance of inventories;
3) possible losses arise due to the obsolescence of the product or its damage.
1.3. Effective management inventories as a factor in profit growth
The efficiency of managing an enterprise's working capital, which includes inventory, has a great influence on the results of its financial and economic activities.
To assess the effectiveness of inventory management, it is necessary to analyze the efficiency of use inventory. Economic analysis, first of all, is carried out according to financial statements, and for a more detailed consideration individual issues management accounting information and analytical information on accounting accounts are also used.
The efficiency of using inventory is assessed by the following indicators:
1) the share of inventory in their total value at the beginning and end of the reporting period;
2) absolute increase in inventory at the end of the reporting period (in monetary units of measurement and in physical units of measurement for each type of product);
3) the growth rate of inventory at the end of the reporting period (in percentage) is compared with the growth rate of revenue from trading activities;
4) inventory turnover, which characterizes the duration of one complete circulation of funds from the moment of transformation of working capital from cash into inventories and until their sale. By accelerating inventory turnover, material resources and sources of their financing are released;
5) an indicator of savings in working capital as a result of reducing costs for material resources and inventory per unit of goods sold without compromising quality, reliability, and performance properties;
Assessing the speed of inventory turnover in trading activities is one of the fundamental elements of economic analysis, since inventory is a slow-moving asset, and it has a significant share in the working capital of a trading organization.
Assessing the impact on the increase in sales volume of the extensiveness and intensity of the use of inventories and working capital will make it possible to identify more rational and progressive ways to increase the efficiency of trading results.
In addition to the listed indicators of the efficiency of using inventory for the purpose of adoption management decisions It is relevant to evaluate such indicators as the product structure in trade turnover, the profitability of the used retail space by type of goods, the sales volume per unit of sales personnel or shift (labor productivity), the product structure of goods supplied to order, etc.
As a result of the high turnover of inventories in trade, it is recommended that economic analysis be carried out over a minimum period of time. The reporting period can be hours, days, technological shifts of personnel, weekdays, weekends and holidays, a week, a decade, a month.
Valuation of inventory and analysis of consumer demand for individual species goods allows you to predict the need for goods of various assortments both for the purpose of developing a specific trading organization and increasing its competitiveness, and for the purpose of macroeconomic analysis of economic development based on such indicators as the commodity structure in retail trade, inventory, inventory turnover ratio and other indicators
Effective inventory management also allows you to find ways to optimize the costs of a trading organization for such items as transport and warehouse costs. Without preliminary analysis inventory and consumer preferences, the decision to reduce the cost of maintaining a number of storage facilities may not lead to savings, but to the opposite effect - a reduction in sales and profits as a result of a constant shortage of goods. To avoid this, it is necessary to evaluate customer demand, the organization’s existing inventory capabilities, the dynamics of sales volume, the location of customers, the capacity and location of warehouses, transportation costs and other criteria. After this it is analyzed alternative use freed up funds in the event of a reduction in the costs of maintaining warehouse premises or transportation costs. The assessment is carried out by a comprehensive analysis of the impact of projected expenses on turnover and profitability indicators.
Factors of economic growth are economic components that influence the quality and rationality of the scale of increased production. The pace, volume and efficiency of actual production depend on these factors.
All factors can be divided into two large groups, depending on the method of exposure: direct and indirect.
Direct factors or supply factors determine the physical possibility of economic growth. These factors are potential resources that influence economic growth through their quantity and quality, thereby offering support for economic development.
Direct factors include:
- Labor resources– the human component, based on the level of education, training and discipline of personnel. One of the non-price factors of demand. Depends on the population (the basis of China's industry) and the level of education (qualified personnel in Belarus create a significant difference in the country's GDP with its post-socialist neighbors).
- Natural, mineral and fuel and energy resources– limited resource base, diverse supply market, in most cases assessing the factor of economic growth of the state. There are exceptions to the rules, countries are poor in resources, but with high level economic growth, for example Japan.
- Volume of basic capital– the main financial resource aimed at faster and higher-quality economic growth. The monetary resource is most closely related to the political component, but it is also most dependent on other direct resources.
- Level of technology development- an integral factor of production, like money and labor, is based on the political and financial state of the state and depends on other growth factors. The factor of technological development is clearly expressed in the example of the USSR in 1920-30, with an increase in production volumes aimed at modernization.
- Organization of production– the ability to choose the most profitable of many solutions, the ability to conduct the economy most effectively. Entrepreneurial talent is needed for rational and timely use of other resources. The use of labor, natural and financial resources for maximum economic growth and increasing the economic efficiency of production depends on the entrepreneurship factor.
All direct factors are goods on the supply market, opportunities that require demand to be used - indirect factors. Demand factors or indirect factors determine the ability to realize resources to improve economic growth. These factors are the result of profitable capital and its use. From correct use With the increased capital, the demand for goods rises to the level of supply, creating an ideal situation in the resource market.
Demand factors include:
- Degree of market monopolization– the problem of macroeconomics and absolute market control is expressed in the form of a monopoly.
- Tax climate in the state is extremely influential on production in large sizes.
- Development of the credit and banking system– advantage for large-scale economic growth.
- Reduce costs– a way to increase investment in production without significant waste and harm to the general economic fund.
- International trade– the ability to export, re-export or import resources to maintain the balance of supply factors.
- Systematization of expenses – one system, aimed at the most profitable use of demand factors and the highest quality and fastest economic growth.
There are also two global factors that characterize economic growth as a whole:
- Extensive factor– increasing the level of production by increasing the amount of labor, land and financial resources. Average productivity remains the same, but quantity increases. The factor is based on conservative production systems and rejects quality improvements, focusing on quantity. The biggest disadvantage of the factor is the possibility of excess labor, which subsequently leads to a decrease in productivity.
- Intensive factor– maximum modernization of unchanged production volumes. The quality of labor and technological resources is improving to obtain maximum profit from the existing mineral potential. The factor is typical for states that are poor in mineral resources, but with a highly qualified workforce and an appropriate level of technology.
Both factors are economically beneficial depending on the potential type of resource and can increase economic growth many times over.
The most effective and fastest temporary economic growth can be achieved with sufficient labor, natural and financial potential, as well as with its most rational use.
Dynamics inventory and the time of circulation of goods are influenced by many factors (Fig. 1).
Studying the nature of the factors and the mechanism of their influence is a necessary prerequisite for a reasonable assessment of the state of reserves, planning their size, developing and taking specific measures to regulate them.
Rice. 1. Factors determining size inventory.
The most important external factors, determining the size of inventory trading enterprise , are:
1. Relationship between supply and demand.
In conditions when the population's demand for certain goods exceeds its supply, trade turnover is carried out with the smallest reserves. As the supply of goods increases and the market becomes saturated, there is a slight slowdown in the speed of circulation of goods.
2.Uniformity and sustainability of consumption of individual goods.
The more stable and sustainable consumer demand for individual goods, the less the need to create inventories in case of unforeseen fluctuations in demand.
An external sign of the uniformity of consumption of individual goods are the indicators of standard deviation and coefficient of variation of one-day trade turnover from its average value.
Large fluctuations in sales volumes indicate impulsive, rush consumption or periodic demand, requiring relatively large inventories to continue normal sales of goods and during critical periods of increased demand.
3. The rhythm of production of individual goods.
The production and purchase of certain consumer goods is seasonal. This applies to vegetables, sugar, cereals, canned fruits and vegetables, etc.
During the production season trading enterprises have the opportunity to purchase goods from direct manufacturers at minimal prices. After the end of the season, the main suppliers are various resellers, whose prices are significantly higher than the prices of manufacturers. Purchasing certain scarce goods after the season may be completely impossible, which will negatively affect the range of goods of the enterprise.
The presence of this factor (if there is an appropriate material and technical base and Money) determines the need and economic interest trading enterprises in building inventory seasonal storage.
4. The state of competition in the commodity market.
The higher the degree of competition in the commodity market, the greater the freedom in choosing suppliers and the improvement of delivery conditions for the enterprise. Coordination of delivery conditions: frequency, volumes of delivery lots, assortment renewal, the possibility of returning low-quality or unsold goods - significantly influence the size of inventory trading enterprise .
5.The integrity of suppliers in fulfilling contracts for the supply of commodity resources, the state of supply discipline.
The general mentality of suppliers, their commitment and conscientiousness in fulfilling supply contracts determines the need trading enterprise in the creation of insurance inventories. The more conscientious the enterprise’s suppliers, the more rhythmically and continuously they are organized. own production, the lower the probability of failure to meet the delivery schedule for goods, and, accordingly, the need to create inventory.
In this regard, the experience of Japan and the USA deserves attention, the “just in time” system of commodity supply adopted in these countries, which allows limiting the size of inventory trading enterprises representative assortment of products.
Minimizing the size of inventory is typical for corporate trade enterprises, trading enterprises , part of associations with their own distribution center.
A prerequisite for this is the high reliability of suppliers and the guarantee of timely delivery of goods.
6.Level of inflation expectations.
In an inflationary economy, one of the motivating motives for creating stocks of material reserves is to protect the enterprise's working capital from inflationary depreciation. The higher the inflation rate, the greater the interest of enterprises in maximizing the size of reserves, in order to protect money from inflation, and to obtain additional income from the rapid growth of prices for individual goods compared to the general rate of inflation.
The size and turnover of inventory is also determined internal factors , which depend on the activities of the trading enterprise itself and are determined by the strategy and tactics of its activities.
These factors include:
1. Location of the trading enterprise.
This factor determines the intensity of consumer flows in the area where the enterprise operates, and, accordingly, the size of one-day turnover, as well as the speed of sales of inventory.
The more advantageous the location of a trading enterprise, the higher the speed of inventory sales and the lesser the need for their creation.
2. Volume of turnover of a trading enterprise.
With a relatively large turnover, the enterprise, as a rule, carries out trading activities with lower inventory levels. This is due to the fact that it has the opportunity to import goods more often, bypassing the wholesale link. Big trading enterprise , especially those that have experience in the relevant market segment, are more attractive to suppliers and intermediaries. This determines best opportunities settlement of delivery conditions, which also has an impact on the size inventory.
3. Enterprise specialization and turnover structure.
Products depending on their quality, features of use, etc. have different time rotation. This depends on the properties of certain consumer goods, the number of varieties included in the product group, and the characteristics of receiving and packaging products. For example, goods that quickly deteriorate, quickly lose their properties, for example: meat, bread, milk, butter - due to their physical and chemical properties, must be sold over a non-longitudinal period. Satisfying the demand for complex assortment goods, such as clothing, fabrics, shoes, haberdashery and others, requires the presence of wide choice varieties of these products by articles, colors, sizes, styles. Since these types of goods are items of periodic demand, their stocks, expressed in days of circulation, are relatively higher than the stocks of other goods.
Consequently, the increase in the share of retail turnover non-food products, complex assortment products are a growth factor general level inventory. At the same time, an increase specific gravity food products, especially sustainable demand, is a factor in reducing the size inventory.
4. Organization and frequency of delivery of goods.
The more often goods are delivered to stores, the smaller inventories can be used to ensure the fulfillment of the turnover plan, and vice versa. In turn, the frequency of delivery depends on the location of retail and wholesale organizations, the location of their main suppliers, and transport conditions.
The closer suppliers and wholesale bases are located to areas of consumption, the more often goods are delivered to retail stores. trading enterprises and less time is spent on their delivery.
Thus, the size of the movement of inventory is determined by the enterprise’s policy in choosing suppliers of goods, depends on the efficiency of organizing economic relations with them and the optimality of the developed schedule for the delivery of goods.
5. The area of the sales area and the form of sales service.
The amount of inventory held in trading floor enterprises must provide a representative display of the entire range of goods available; freedom of buyers to study the properties, characteristics of the product and their choice; aesthetic design of the sales area and its attractiveness to customers.
How larger area sales area, the larger the size inventory must be located directly on the sales floor.
The form of trade services also creates a significant impact. In self-service, the need for inventory located in the sales area is higher than when served over the counter.
6. State of the warehouse.
This factor is limiting and determines the maximum possible size inventory of goods . The larger the area (capacity) of warehouse space, the larger the volume of inventory that can be created (if necessary). Individual trading enterprises are forced to create inventory at an insufficient level, due to the lack of necessary warehouse space.
The availability of specialized warehouse equipment is also essential ( refrigeration chambers), the ability to create special joints for storing individual goods (vegetables, groceries, jewelry, fur, synthetic detergents), compliance with product proximity and other storage rules.
7.Organization of commercial work.
Important for correct definition The need for the creation of inventory and the operational regulation of their size is determined by the qualifications and competence of personnel and the level of management of the trade process, the state of work on studying the demand of the population, the organization of prompt and effective control over the receipt, sale and balances of goods, maneuvering of commodity resources, etc.
Well-established work in this direction helps to minimize the size of stocks of slow-moving, obsolete goods, and excess stocks. This allows you to reduce the company’s costs for the formation and storage of inventory and reduce product losses.
8. Financial position of the enterprise.
The formation of inventory can be carried out in various ways:
By paying for goods using the company’s funds;
By obtaining a commercial loan from suppliers (receiving goods with deferred payment);
By accepting goods for sale or commission.
Possibility of using each forming method inventory and the relationship between them directly depends on the financial condition of the trading enterprise, its solvency and financial stability, the degree of trust in him.
The more stable financial position enterprises, the greater the opportunities for the formation inventory it has.
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24.Effective inventory management as a factor in enterprise profit growth
Inventory management policy – part of the overall policy for managing current assets of an enterprise, which consists of optimizing the overall size and structure of inventories of goods and materials, minimizing the costs of their maintenance and ensuring effective control over their movement.
Purpose of inventory management is to develop policies by which optimal investment in inventories can be achieved. Good inventory management minimizes inventory volume, reducing inventory-related costs and increasing return on assets.
Inventory management policy represents part of the general policy of managing current assets of an enterprise, which consists in optimizing the overall size and structure of inventory inventories, minimizing the costs of their maintenance and ensuring effective control over their movement.
The development of an inventory management policy covers a number of sequential stages of work, the main of which are:
Analysis of inventory inventories in the previous period .
The main objective of this analysis is to identify the level of production and sales of products with appropriate inventories in the previous period and assess the effectiveness of their use. The analysis is carried out in the context of the main types of reserves. Determining inventory formation goals
. Goals can be: ensuring current
production activities
(current stocks of raw materials and supplies);
ensuring current sales activities (current inventories of finished products); accumulation of seasonal reserves to ensure the economic process in the coming period
Optimizing the size of the main groups of current inventories .
For this purpose, a number of models are used, among which the most widely used is the “Economically justified order size model”. It can be used both to optimize the size of production inventories and finished goods inventories. The calculation mechanism of this model is based on optimizing the total operating costs for the purchase and storage of inventories at the enterprise. These operating costs are pre-divided into two groups: a) the amount of costs for placing orders(including costs of transportation and acceptance of goods) health protection- the amount of operating costs for placing orders; Srz – - average cost of placing one order; AKI
– volume of industrial consumption of goods in the period under review;
RPP
the average size one shipment of goods. From the above formula it is clear that with a constant volume of production consumption and the average cost of placing one order, the total amount of operating costs for placing orders is minimized with an increase in the average size of one shipment of goods. b) the amount of costs for storing goods in a warehouse.
OZhT
Thus, with an increase in the average size of one shipment of goods, the amount of operating costs for placing orders decreases and the amount of operating costs for storing goods in a warehouse increases. This model allows you to optimize the proportions between these two groups of costs so that their total amount is minimal. The model is expressed by the formula:
RPPo- optimal average batch size for delivery of goods.
The optimal average size of production inventory is determined by the formula:
For finished product inventories, the calculation of indicators is similar.
The required amount of financial resources advanced for the formation of inventories of goods and materials is determined by the formula:
FSZ = SR NC - SC
FSZ– the amount of financial resources advanced to inventories, SR– average daily volume of inventory consumption, NZ– stock storage standard in days, short circuit– the average amount of accounts payable for the transformation of inventory items.
The calculation is carried out for each type of inventory. Summing up the calculation results allows us to obtain an indicator of the total need for financial resources advanced for the formation of reserves, i.e. determine the size of current assets serving this stage of the production cycle.
Minimizing the current costs of servicing inventories is an optimization problem that is solved in the process of their rationing.
Calculation optimal size delivery batch, at which the minimum total of current costs for servicing inventories is economically justified quantity of stock (EOQ) method allows you to determine which size should be ordered
F– costs of placing and fulfilling one order, D– annual demand for reserves in units, H– costs of storing a unit of production inventory in rubles.
This model is based on the following assumptions: annual inventory requirements can be accurately forecast; sales volume is evenly distributed throughout the year; There are no delays in receiving orders.
Widespread inventory management system - ABC – dividing the entire set of inventories into 3 categories, based on their cost, volume, frequency of consumption in the production process and negative consequences on the final results of the enterprise.
The ABC method allows you to focus on controlling the most important types of inventory (A and B), and thereby save time, resources and increase management efficiency. The ABC proportion is considered optimal: 75% - 20% - 5%.
The choice of inventory management policy practically consists of answering the question: “what amount of inventory is optimal for the organization?”
Both direct and more generalized criteria, as well as their various combinations, can be used as basic indicators of the quality of the selected inventory management policy.
indicators of inventory sufficiency to meet customer demand
indicators based on the search for the optimal order size, based on the ratio of the cost of storing inventory and the cost of order fulfillment
indicators related to the characteristics of cash flows from operations for the purchase and sale of goods
indicators reflecting the profitability of an enterprise under various inventory management methods.
