Inventory management is typically perceived as a warehouse-related problem. If products are out of stock, too much in stock, or not available at the time of demand, it must be somewhere within the supply chain.
In reality, many inventory challenges begin much earlier—with data.
The Hidden Cost of Poor Inventory Visibility
Companies now create more data than ever through their operations. Data is created from sales transactions, supplier lead times, purchasing activities, demand for customers, and even activities within warehouses.
But the issue is that such data is often created in isolated systems.
If inventory managers depend on manual tools, old reports, or non-integrated systems, then the process will be reactive rather than proactive.
Here are the usual consequences:
Excess inventory which locks up money
Frequent stock outs
Poor demand forecasts
Delayed purchase decisions
Low customer satisfaction
Such issues don’t just reflect poorly on the management of inventories but also poor visibility issues.
Why Forecasting Fails
Many companies assume that forecasting presupposes making predictions flawlessly.
It does not.
The essence of forecasting is to improve decision-making based on the information available.
Companies with poor inventory management skills usually have one of the following problems:
- Lack of Full-Fledged Information
Not only sales history is important.
Also, companies need to take into account:
Seasonal factors
Supplier reliability
Market dynamics
Campaigns
Different stages of product life cycles
- Old Data
Data that is two weeks old might already be out-of-date.
Inventory visibility in real time helps businesses react to changes quickly.
- Non-existent Standard Procedures
Even the most sophisticated technology will not save you from inconsistent inventory processes.
The more clear-cut your business processes are, the more effectively technology will work for you.
Inventory as an Asset
Most companies perceive inventory as a necessity.
Successful businesses regard it as an asset.
Every item in stock is capital which could be put to better use while low levels of inventory might lead to loss of profits and disappointed customers.
Balancing both sides requires appropriate data and discipline.
Technology in Inventory Management
Current inventory systems allow businesses to go beyond manual processes.
These are some of the key capabilities:
Automated stock surveillance
Demand forecasting
Supplier performance surveillance
Optimization of reorder points
Inventory turnover
Multisite inventory surveillance
Technology does not reduce uncertainty, but it certainly enhances a firm's flexibility.
Creating an Inventories Process That Is More Resilient
Organizations that perform well when it comes to inventories consider the following key principles:
Measure All
What is measured gets managed.
Measures to be taken:
Inventory turnover
Inventory carrying cost
Frequency of stockouts
Lead time
Order accuracy
Risk Diversification
Having only one supplier makes you vulnerable.
Establish connections with more suppliers whenever you can.
Keep Safety Stock
Unforeseen occurrences occur.
A good safety stock approach will protect the company from any unexpected occurrences without incurring too many expenses on inventory.
Improve Forecasting Continuously
Forecasting needs to be improved as more information comes up.
Revisit assumptions and make necessary changes.
Closing Remarks
Inventory management is no longer only a business process but a business tool as well.
Businesses that can take advantage of accurate information, use appropriate technology, and manage their inventories can gain more from their activities.
The future of inventory management isn’t in holding more stock.
It lies in making better decisions using better information.
for more details visit The Inventory Master.
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