The difficulties of inventory management can be minimised simply by utilising purpose-built software, tried and true methods and adjusting one’s approach to it. In this article, we consider the difficulties of inventory management with particular attention to the reactive and proactive approaches to stock control.
Reactive inventory control
This is the method where you react to situations as, or after, they have occurred. In inventory management, this can be when you order an item only once the demand has already arisen. Or perhaps, you perceive there to be a bottleneck in the production line or supply chain, and rather than assessing the chain constantly to act proactively and mitigate effects, you simply deal with the issue in real-time as it comes to the fore.
There can be a lot of situations in which reactive inventory control is beneficial. For example, if you are a small company just starting out, you may not have the resources to plan and prepare for every possible outcome so that, no matter what happens in your supply chain, you have perpetual inventory and can accommodate every customer whim.
Depending on the product or service you provide, it may be in the company’s best interests to act reactively to demand rather than have inventory sitting around, unsold. This could be for high-value items where ordering is more infrequent, but lucrative when it does occur. In this case, it would not be wise to have safety stock for risk of expiration or obsolescence; and, customers probably are quite prepared to wait a short time for their product as they would not have made the purchasing decision lightly in the first instance.
Proactive inventory control
In most companies, it is encouraged to ‘measure twice, cut once’, regardless of the company operation in question. The motive of this is to spend more time preparing so you have to execute the correct action only once. This is essentially what proactive inventory control is — you spend time and invest resources in understanding inventory so that you can predict future demand, fluctuations and any curved balls as efficiently and accurately as possible. This allows you to put in place corrective chains of events that can mitigate the effects of the perceived change in demand or supply. Of course, this kind of management style requires attention to detail and a large amount of time (which is a precious resource) looking at all the options and projecting all the possible outcomes. If you order inventory based on projections that in fact do not come to pass, then there will be excess inventory in the warehouse that ties up cash that cannot be utilised elsewhere (lost opportunity costs).
The benefit of this kind of inventory management is that the due diligence and preparation invested from the beginning can certainly ensure you are more likely to maintain supply to your customers and foster precious customer relationships. However, this assurance comes at a cost as significantly more time and capital are invested in ensuring all variables can be absorbed without affecting your ability to meet customer demand. Therefore, this method of control is most appropriate for larger businesses who may have valuable customer relationships and reputations to uphold, and can financially service the luxury of being prepared for any inventory situation.
Other inventory hurdles and the fairy godmother you can call on
Inventory management is not just about deciding on your style, how you will make decisions (reactively or proactively) and optimising your resources to suit. It is also about working with your suppliers, your shipping companies and understanding all the constraints on supply such as economic, social and geographical parameters. This can be difficult, but understanding comes from having knowledge and data at hand. This is where inventory management software packages like Unleashed are powerful and irreplaceable. They allow you to track your inventory from receipt, through production and all the way to sales so that you can follow it, analyse it, understand it and ultimately make knowledgeable decisions from it. It also allows you to draw conclusions about historical trends and extrapolate data into future situations to again allow for informed decision making.
In inventory management it is vital to arm yourself with knowledge so that management decisions are not made blindly but instead in a focused way, be it reactively or proactively, that considers all the outcomes.
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.