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DECISION SUPPORTING SYSTEM FOR INVENTORY MANAGEMENT

CHAPTER ONE

INTRODUCTION

1.0 Introduction

Over the last several decades there has been much speculation about the role of computers in management. Predictions that computers would take over many management functions encouraged counter claims that computers could have only minimal impact since most management functions cannot be automated. The experience to date has fallen between the two extremes. Although very few management functions have been automated, advances in information retrieval, processing, and display technologies have certainly led to significant computer applications that help people perform management functions. Ever since, Management Information System replaced Electronic data process system as the popular term denoting computer applications in business, computer aided decision making in organizations has been the object of high hopes. Although the computer industry has enjoyed remarkable success in transforming the way business transactions and data are processed. MIS and management science professionals have been disappointed by the relatively limited use of these systems for managerial decision making. In these circumstances decision support systems emerged as new, practical approach for applying computers and information to the decision problems faced by management.

Decision support systems (DSS) represent a point of view on the role of the computers in the management decision making process. Decision support implies the use of computers to [Alter, Steven, 2000] Assist managers in their decision processes in semi-structured and unstructured tasks, Support, rather than replace, managerial judgment, Improve the effectiveness of decision-making rather than its efficiency. The second term in phrase is support. A DSS supports and does not replace the manager. This emphasis on enhancement of decision making exploits those aspects of computers and analytical techniques that are appropriate for the problem and leaves the remainder to the manager. Many problems have components that can be structured and others that require subjective assessments. In pricing some consumer products, for example, management intuition alone is inadequate, a computer model alone is also inadequate, but the two together may be most effective.

Compared with effectiveness, efficiency implies a narrowing of focus in order to get a specific job done. Typically, it takes the form of minimizing time, cost, or effort to complete a given activity. Effectiveness, on the other hand implies a broadening of focus in order to find out what set of activities should be considered. It requires defining and searching a decision space to become more confident that the goal itself is relevant and appropriate,

In the aggregate, inventories affect the economy through business cycles. Individually they provide the means by which we can effectively organize operations such as purchasing, manufacturing and distribution so that ultimately the end user receives any desired level of service. At the level of the firm, inventory is among the largest investment made and therefore logically deserves to be treated as a major policy variable highly responsive to the plans and style of top management. In general the larger the inventory the easier it is to plan operations and work force levels, the easier it is to reduce costs of purchasing, manufacturing and shipping, the easier it is to provide prompt customer service (Aggarwal, S., 2011). At the same time, a larger inventory also requires a larger investment of money and has associated with higher costs such as storage, handling, risk of obsolescence and data processing. The management tries to balance these latter costs against the advantages achieved from stocking larger amounts in inventory As such solving an inventory model is a structured problem. But some features like policy analysis, analyzing alternate models, coordinating multiple items etc,, make the inventory system design semi- structured. So the analytical power and computational ability of the computer can be rightly combined with the intervention of the management to formulate a decision support system.

1.1    STATEMENT OF THE PROBLEM

Developments in information technology (IT) over the past two decades have enabled many organizations to establish computer-based information management system (MIS) to improve inventory management. Most of these systems are mainly used to record transactions, produce management reports, and monitor inventory status. They lack the ability to help inventory managers to choose the correct model by analyzing the data kept by the system to identify the inventory environment. To maintain optimal inventory operations in a company, the management will have to continuously review and update the accumulated data, the selection of suitable models and the computation of new optimum values of ordering decisions. This is needed because the conditions in relation to the demand, the cost elements, the supply, the lead time, etc., are likely to change with time. The complexity of such a problem will greatly increase as a result of a large number of stock items in the inventory.

Pepsi bottling company for instance stock thousands of items which results in a very large number of records being generated. The analysis of such huge amounts of information is beyond manual human capacity or traditional computational methods. For a company to be more competitive, it has to face the challenge of reducing the processing costs. This issue is closely related to the effectiveness of inventory management which can help to reduce both the storage and the labour operating expenses. A small percentage reduction in inventory can be transformed into significant operating profit.

1.1 Theoretical Background

The decision making in inventory management must resolve mainly three basic issues: How often the inventory status should be determined? When a replenishment order should be placed? and How large the replenishment order should be? (Silver & Pyke, 1998). Some companies, to solve the first question acquire enterprise information systems in order to know the inventory status in real time, and with this information make the processes of purchasing, manufacturing and distribution. To solve the second and third issues, companies implement inventory control policies that require the definition of some parameter such as: reorder points, order quantities, inventory levels, security stocks, and service levels. Enterprise information systems include some inventories models but the inventory manager has the responsibility of determining, in most cases empirically, the parameters that is needed to process the information; but most enterprise information systems do not have tools that support the decision making for inventory management.

1.2 Statement of Problem

It is often the case that critical items are out of stock, leading to hasty buying because of low stock levels. There are cases of inaccurate recording or poor entering of some data information, which was a good indication of poor inventory control. There is at many times, discrepancy between the information provided by stock control ledger card and the actual physical stock balance. Organizations need a decision support system for inventory management to avoid unnecessary tying down of funds as well as loss in fund due to pilferage, spoilage and obsolescence of stock. They also need it to avoid too low inventories so as to meet users demand as at when needed. Therefore, the mere fact that ineffective inventory management affects virtually the organizational objectives necessitates this research work on decision support system for inventory management.

1.3 Aim and Objectives of the Study

The aim of the study is to develop a decision support system for inventory management. The following are the specific objectives:

1.4 Significance of the Study

The significance of the study is that it will enable the management of pepsi bottling company, Ikot Ekpene to effectively manage their inventory records. It will provide useful information that will aid them make a decision on when to reorder for a product that has reached the set re-order level. The study will also serve as a useful reference material to other researchers seeking for information pertaining the subject.

1.5 Scope of the Study

This study covers decision support system for inventory management using Pepsi Bottling Company Ikot Ekpene as a case study. It is limited to the registration of stocks and their re-order level so as to know when to get more of the stock. It tracks down stock level as there are being sold.

1.6 Organization of the Research

This research work is organized into five chapters. Chapter one is concerned with the introduction of the research study and it presents the preliminaries, theoretical background, statement of the problem, aim and objectives of the study, significance of the study, scope of the study, organization of the research and definition of terms.

Chapter two focuses on the literature review, the contributions of other scholars on the subject matter is discussed. Chapter three is concerned with the system analysis and design. It analyzes the present system to identify the problems and provides information on the advantages and disadvantages of the proposed system. The system design is also presented in this chapter.  Chapter four presents the system implementation and documentation. The choice of programming language, analysis of modules, choice of programming language and system requirements for implementation.  Chapter five focuses on the summary, conclusion and recommendations are provided in this chapter based on the study carried out.

1.6 Definition of Terms

Computerize: To store information in a computer system or process it by computer.

Decision support system: An aspect of management information system that is focused on enabling its users make timely decisions with well programmed software systems.

Management: The organizing and controlling of the affairs of a business or a sector of a business

Inventory:  A record of a business’s current assets, including property owned, merchandise on hand, and the value of work in progress and work completed but not sold.

System: A combination of related parts organized into a complex whole.

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