Inventory Control and Management Systems at Joseph Banks
In simple terms, inventory control is the process that allows organizations to keep a check on how much of what products they have in stock, the value of that stock, when it will be used up, and hence what should be the reorder costs and time involved. The reason why increased attention has been paid to inventory is that it is often one of the highest valued assets on a company’s balance sheet.
A proper inventory control system ensures that an organization saves the extra costs involved with warehousing excessive stocks, and also that in times of demand spikes, there won’t be any stock run outs as is often the case due to lack of proper forecasting (Dhavale, 2009, pg 50). For the purpose of this assignment, I have selected Joseph Banks. In the case of financial institutions and banks in particular, it is important to understand that the product supplied i. e. money, is in continuous use by everyone in an economy.
Thus, banks have to take extra precautionary measures to ensure that there is always enough cash on hand and in reserve that would meet both routine and abnormal spikes in demand. Before proceeding to a discussion about the Inventory
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The cash that is received by the bank is invested in selected projects that have been evaluated to earn a high rate of return on the initial capital. The duration of the project selected again depends on the tenure of the deposit. The bank has to maintain a balance between the amount deposited and the amount it invests. The different types of bank accounts such as current, savings etc, determine the time for which the depositor cannot withdraw funds. The inventory for banks in physical form is thus the currency notes or cash.
The existing bank policy is to maintain a value of at least 50% of the total denomination value of the currency notes circulated. The time of the year when this policy is not met is at Christmas, when the value falls to almost 25% of the currency in circulation. Banks also have to keep a buffer for those events that cause people to suddenly withdraw funds as is the case in natural and/or national disasters. If a bank wants to increase its reserve, it usually orders more currency notes printing to remain well prepared for crisis.
As soon as the note printing order of 2010 arrives, the inventory holding ratio of Joseph Banks will improve significantly to 42%. Till the end of the year, this ratio is further expected to improve to almost 75% of the notes in circulation. To make the business more sustainable, the bank has implemented a policy of maintaining a ratio of 100% inventory holdings in future. In order to accomplish this target, the bank has placed an order of an additional 55 million notes that will increase the inventory levels with respect to value of notes in circulation (Beesack, 2007, pg 622).
The bank is meeting the current demand and also the expected growth in demand of 7% per annum. If the inventory levels are made twice as much, this will allow a buffer for next two years. There are no expected or predicted events that are likely to cause the current notes to be disallowed use like changes in design. It is desirable that the company maintains 100% inventory buffers for future. The potential of terrorist acts and the threat of a flu virus are also causing the bank to take extra precautions since the notes are printed abroad.