Some businessmen are carried away by a single criterion, which sometimes works perfectly, but in others it leads us to make costly mistakes; People who have been running companies for a long time know that reality is not black or white, but that it has different shades of gray, which is why in this writing it is not intended to give the last word of anything, since it does not exist, which The aim is to provide instruments that, together with their good judgment, allow them to make better decisions, stressing that an instrument is useful depending on the hand that handles it and that decision-making is still the most important managerial responsibility. However, as we get to know and manage a greater number of instruments, the probability of success in our companies increases, since luck is on the side of the best prepared mind (this phrase is attributed to various characters, but regardless of who said it, it is perfectly valid). In the case of inventories, complete encyclopedias have been written on their management, so summarizing in such a short space, some of the fundamental criteria for their management, is equivalent to what marketing experts call giving a tasting of the product, seeking in this way, that the interested parties investigate later, ways of acquiring a greater quantity of this. This document aims to provide tools to improve inventory decision making, it does not provide elements for inventory manipulation. The models to be mentioned are relatively simple and it is recommended that, as far as possible, “play” with them,
Motivating example
A few years ago it was common to find in stores the caricature of the “skinny man ruined by selling on credit, next to the opulent fat man who sold cash”; This Manichean management of the sale, some people transfer it to inventories, where there may be multiple positions and it is frequent to observe how some businessmen defend the extremes, sometimes being counterproductive to the interests of the organization. As well as in sales, businessmen and even stores and supermarkets have had to include different marketing schemes, where credit possibilities are mixed, with cash payment discounts, as the only survival option; Entrepreneurs in general should look for tools for inventory management, that allow them to handle these from different angles and be prepared to reconsider their use at any time, since, pretending that there is today, a unique and better way of solving something, is a symptom of stubbornness and can lead the company to major complications and even in bankruptcy, it can at best give the appearance of a “false triumph”, which will surely later become an unperceived defeat. At present it is not strange to find people, who affirm that: “large amounts of inventories must be managed, since this means wealth and that it is preferable to store silver in supplies or products, since with the increases caused by inflation and / or or the devaluation, a higher profitability is achieved than in other options “. At the other extreme, people who affirm that: “inventories must be reduced to zero and manage a just-in-time policy, where inventories are a problem caused by managerial inefficiency” are observed; which reminds us of the initial example, with an aggravating circumstance, in this situation at both ends it is possible to be wrong, since someone may have excess inventories and not have to pay the payroll, while at the other end it would be someone who has had to delay its production process for not having in a timely manner the elements required for this purpose.
Models for decision making
There are different schemes in the creation of models for decision making, in this case we will mention one of the schemes that is applied in the science of administration, which does not pretend to be the revealed truth, this is valid for inventory problems or for any business situation. It is essential to emphasize that it should not be seen as a rigid set of procedures, in some cases steps may be skipped, in others it will be necessary to create variants, however, it is important to use a guide that will facilitate the processes and will contribute to more management. efficient, the steps to follow are the following:
- Accept or acknowledge the existence of a situation (s) susceptible to improvement, which is different from a manifest problem, the important thing is to recognize that acting differently could obtain better results; In this step you must be very careful, since a person can have different objectives; It is also presented that different areas of the organization have contradictory objectives, for example, the commercial department may claim results that contradict the objectives of the person who manages the financial department. In the case of inventories, this occurs frequently, since for a financial manager, inventories can represent lost profits, while for the commercial manager, they can represent the way to provide a better service,
- Formulate the problem, raise the situation (s) already defined, prioritizing them if necessary in the form of a problem, seeking to solve the most critical and / or the most feasible first, in the judgment of management. This step is delicate since a high percentage of the solution, is given by a good approach, a wrong approach can lead to disastrous consequences for the organization; In the previous example, if I think about saving a few pesos, in this difficult time for business, I can do it at a certain time sacrificing service, however, this can be reversed against my company in the medium or long term.
- Build the model , represent the problem in some way, in our case, mathematically, being aware that the best model is not necessarily the newest, nor the most complicated, the goodness of the model is measured by the way in which it interprets reality and for the help it can provide to the decision maker.
- Collect the data , this is one of the most expensive parts and where help is needed from all areas of the organization, in the case of inventories we must know the maintenance and order costs, the demand, the delivery time In short, the information we need is very extensive from our suppliers and the validity of the model depends on its quality, since parodying the system engineers, if garbage enters, garbage leaves. If the above is true when a computer is “fed”, the reason for it is fulfilled in the quantitative models.
- Solving the model, this is really the simplest part, if the previous steps are correctly carried out, it is to operate with the data collected in the previously built model, in this part some authors recommend managing scenarios, that is, to fluctuate the data collected to Analyze the possible influences of these changes and be aware if they occur, others recommend, if possible, see how the model behaves in situations that have already occurred, in order to verify to what extent they would have helped us make the best decision according to the circumstances.
- Interpretation of the results, in this part the managerial criterion is fundamental, since, NOTHING can totally replace the judgment of the one who makes the decision, the idea of the model is to help, not to replace the decision maker, here it is essential that the one who takes the decisions Decisions are stripped of prejudice and see the solution as objectively as possible, do not think that when proposing the model different solutions to those that have been implemented, this or previous decisions do not work. The true professional can be obtained from the attainment of a university degree and / or by the related experience and study in the field of work, what really distinguishes him is his ability to analyze and evolve in and with the weather.
- Implementing the model, if the previous steps were handled correctly, this should be the simplest, however, in practice it occasionally presents problems, due to the rejection of some parts of the organization to the changes, because at all levels of The organization frequently observes people who, by not leaving pre-established routines, oppose and delay the implementation of new ideas.
- Feedback and recreate the model, taking into account that the circumstances of the environment or the company may change, it is essential to be constantly verifying the model, which does not detract from its validity and shows seriousness and objectivity in decision-making, remember that not even “the most complex computational packages can be left to decide”, that always the decision maker is the manager, this is even more valid in relation to management models.
In this part, it was suggested to create the model in the broad sense of the word, however, it is important to emphasize that, when it comes to inventories, there are a large number of them, so it is generally not necessary to “discover warm water”, It is important to know when and where to use it. Models must allow us to make mistakes on paper, decreasing the probability of making them in real life, computer applications allow us to quickly see many options simply by changing numbers according to the reasoned assumptions we use within the situations that may arise in the company. In the book INVESTIGATION OF OPERATIONS IN THE ADMINISTRATIVE SCIENCE by Eppen it is stated: “Neither the dimensions nor the mathematical refinement of the model necessarily imply, by themselves, that it will be useful. Small, simple models can also be very helpful in providing decision-making aids. Furthermore, the large and sophisticated models that are successful have almost always evolved from a rudimentary precursor, thanks to success in administrative experience, “which is absolutely valid for this topic.
Inventory Management
Arguments in favor:
- Predicting scarcity
- It is better to save products than money
- They allow to obtain additional profits when there are increases
- They facilitate offsetting (separating) the different processes of the company.
Counterarguments:
- Immobilize resources that could be better used
- They hide the company’s problems
- They hide the ineptitude of the decision maker
- They make it easier to hide quality problems.
The arguments put forward by the “supporters” of each current have relative validity, this is what makes them so dangerous, since having unquestionably a part of reality they are even more difficult to refute than the true truths as Fuentes would say, due to the Previous is that we must be objective in the position to assume and not be Manichean, that is, we must not believe that our argument is correct and that all the others are wrong. What is indisputable is that inventories represent a high percentage of assets on the balance sheet and purchases are the same with respect to profits in the income statements, so if from a financial point of view we recognize this reality and not we do nothing in order to improve its management we are being irresponsible with our company.
