Three Ways to Enhance Inventory Management

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 “Excellent firms don’t believe in excellence – only in constant improvement and constant change”    
~Tom Peters

The maxim of striving for constant and never-ending improvement is one that drives business innovation, growth and success across all industries. For inventory managers it is a principle that, if harnessed and put to use, can dramatically boost efficiency and cut down on loss.

Ask quality questions – get quality results

A good inventory manager is one who is constantly asking how their inventory control can be improved. How can safety stock levels be optimized to meet future fluctuations in demand without becoming an overstock burden? How can synergy between all departments be enhanced so that purchasing, storage, sales and distribution are all in sync with the rise and fall of demand across the supply chain? What are the most effective ways to identify major areas of loss and what can be done to deal with them effectively? What is the peak order or production timetable required to keep inventory levels at their optimum?

The solutions to these questions are never fixed; there is always room for progress and improvement. Some of the most effective ways to improve and enhance your inventory management capability can be achieved by putting the principles outlined below into practice, and constantly adapting and refining them to streamline your inventory flow from start to finish.

Adopt a three-pronged plan of attack – one for each major type of inventory

Inventory needs to be dealt with on three major fronts – safety stock, replenishment stock and unnecessary or excess stock.

Safety stock levels should be sufficient to deal with any unforeseen disruptions that could occur either internally or externally to the organization. Internal issues include breakdowns in production machinery, issues with the supply chain, theft and damage.

External factors could be a sudden surge in customer demand, unexpected new purchase orders, or a drop in market retail prices causing an acute rise in sales. Whatever the cause may be, ensuring that you have enough safety stock to carry you through two weeks before resupply becomes available is a good buffer level to aim for.

Calculating the minimum safety stock levels required to carry you through crises and avoid stock out is a crucial step that you need to get right if you hope to improve your inventory control. This is not the time to go with gut feel and rule of thumb solutions. Your calculations should include all the data – sales forecasts, lead times on production, unfulfilled and expected purchase orders – and all data needs to be up to date.

Replenishment stock should be carefully monitored and controlled by ensuring that your procurement managers are always able to access real time, up to date data on stock levels. Investing in a top tier inventory management software system is ideal for this purpose.

Operating inflexibly by basing replenishment purchases on a fixed re-order schedule leaves little room to accommodate unforeseen changes in stock demands. Inventory management software that automatically updates stock levels in real-time allows managers to set minimum and maximum inventory levels with total confidence.

Over stock and under stock will be avoided because the moment any item in your inventory approaches very low inventory or high inventory levels, your supply chain managers will be instantly alerted. Appropriate measures to then replenish stock levels or pull back on purchasing can be carried out in time.

Excess stock will accumulate. No inventory management team or inventory management software system is capable of planning against all eventualities that contribute to the buildup of unnecessary stock. The key, however, is always keeping excess stock within levels that don’t cause constant or irreversible burden on working capital. Identify slow-moving stock and get rid of it as expediently as possible. The less deadweight you have holding down your cash flow, the more streamlined and therefore the more profitable your business will be.

Look hard enough at your inventory control protocols and you will soon begin to see areas of weakness that can be improved upon. Sometimes all it requires is a shift of focus, such as pulling back from trying to generate more accurate forecasts, and instead focus on sourcing suppliers and manufacturers with faster lead times and more cost-effective pricing.

At other times it may call for investing in a sophisticated software solution that is capable of stepping your entire inventory management system up a few gears until it is operating at peak performance.  Whilst no inventory-based business is alike, with the right approach and the right tools, constantly improving your inventory control can be effectively achieved.

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Melanie - Unleashed Software
Melanie

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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