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The inventory advisor

Jul 15, 2015

Are you getting value from your inventory management system?

Are you still experiencing an unacceptable level of stocks out? Do you still have excess inventory? If you have an Inventory Management System (IMS) and the answer to these questions is yes, then you may not be getting full value from the system.

Inventory control versus inventory management

Firstly, establish whether you have an inventory control system or an inventory management system.

  • Inventory control systems are very good at tracking transactions, identifying when goods are received, binned, picked, shipped, returned and written off. They are not good at determining the most appropriate inventory optimisation levels.
  • Inventory management systems compute optimal levels of inventory based on service level targets, simultaneously improving customer service levels (meaning customers get what they want when they want it) and reducing the investment in inventory.

Technology and complexity doesn’t always = benefits

Technology has enabled a trend for more complex applications to deal with today’s complex environments. Experience has shown that users don’t utilise the full capability of such systems, routinely switching back to their simpler pre-system methods.

If users engage more readily with simpler applications, looking for an application that was designed to achieve 80% of the benefits may result in better sustainable benefits for your business.

Setting the IMS up to succeed

Any IMS must be set up correctly for it to be effective. It must:

  • Be correctly configured, implemented and utilised
  • Use accurate, well maintained data
  • Be intuitive to use and easy to learn
  • Make use of dashboards alerting users to critical inventory issues such as stock outs, potential stock outs, surplus orders, and excess inventory
  • Allow order recommendations to be reviewed and amended before order placement with suppliers

Setting your team up to succeed

Accountability is very important – identify and appoint a key individual as the “inventory management system custodian”, to ensure:

  • Realistic, achievable goals are set
  • Team members are sufficiently trained and engaged, at all times
  • Team members complete tasks assigned to them on time
  • Regular review of classification, forecasting, supplier lead times and ordering takes place
  • Performance against the goals is measured, tracked and corrective action taken
  • Visibility is provided to management

Simple disciplines make the biggest difference

Inventory is a living, breathing thing – it changes on a daily basis. Making your team aware of the simple inventory disciplines that they should do daily, weekly or monthly goes a long way towards achieving sustainable benefits. These disciplines include:

  • Reviewing forecasts; if you don’t know what you expect to sell you can’t purchase inventory to support the plan
  • Responding to early warning signals; where we are either predicted to stock out in the future or may have over-ordered, results in less actual stock outs and excess inventory in future
  • Actioning inventory exceptions; getting stock outs back into stock as soon as possible and focussing on excess stock reduction
  • Validating the inputs; ensuring that the key data inputs are all correct, including the supplier, stocking indicator, lead times, minimum order quantities and order multiples
  • Driving inventory with a well-defined stocking policy; setting your target fill rate and order frequencies to provide the level of service you wish to offer to your customers whilst minimising the investment in inventory to do so
  • Creating the perfect order; doing your utmost to place the most appropriate order every time you order will minimise inventory exceptions

I hope that this post has given you some ideas to help you get the most from your IMS.