November 18, 2019      < 1 min read

Having good inventory management is a key factor to any successful company. Furthermore, ensuring you have the right levels of inventory is vital to any profitable company as it helps control costs, and in addition it acts as a bench mark to assessing your company’s overall health. Below we pose five questions to assess whether or not their inventory is healthy.

Does your company break down its inventory into manageable categories?

It is imperative that a company breaks down its inventory into manageable categories such as safety, replenishment and excess or obsolete stock. Not only does this make it easier to operate inventory in terms managing reporting levels, but it also offers powerful management decisions. Making decisions about these three areas of inventory is at the heart of inventory health. Knowing the right level of safety stock is important for unprecedented circumstances such as break downs in the supply chain, ensuring your customers get what they need. This type of categorical reporting can be useful as it helps pinpoint replenishment levels and excess or obsolete stock to better apply marketing strategies accordingly.

Does your company use the most effective method when reordering inventory?

There are generally two methods that companies adopt when it comes to reordering inventory. The first is a rule of thumb method, whereby for example, your company orders XYZ from factory A every two weeks. The second is using statistical formulas that incorporate accurate sales forecasts based on production lead times, manufacturing schedules and service-level data for each item of inventory.

The latter is more efficient as it looks at the history of data for individual products to get better accuracy of orders when replenishing inventory. The first – the rule of thumb approach – is problematic as it often deals with inventories of uncertain delivery histories. More efficient approaches of ordering inventory help with more accurate orders, creating healthy levels of inventory.

Does your company do regular inventory checks?

Assess whether or not your inventory is healthy by regularly updating inventory levels. Actively doing pulse checks on inventory can better direct business decisions, because the data is based on the most accurate information.

Does your company use the right people to determine stock levels?

Determining inventory levels comprises of strategic decisions. Because of this complexity, it should encompass not only the supply organization, but executives as well due to factors that impact inventory management. This includes determining the right amount due to the market product offering to the optimal plant and distribution efforts.

Does your company have a plan in place for healthy stock levels?

Healthy inventory management looks at plans in place for excess or obsolete stock. First, operations should be looking at reasons why there is excess or obsolete stock. Second, the sales team needs to be aware of how much inventory is in this category to organize marketing efforts accordingly as to decrease the loss of profitability and increase the overall health of your company’s inventory.

These questions help determine whether your inventory is healthy. Furthermore, they can be used for a company to assess their strengths and weaknesses, and to follow through with plans based on new opportunities and when dealing with potential threats.

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