Jan 28, 2020
Implementation tips when implementing an inventory management system.
Lower inventory costs and higher customer fill rates lead to improved inventory balance and give your company a competitive edge. On the flip side, neglecting your inventory means reduced profits and reduced customer service levels, which could ultimately result in company failure.
Companies that have tried some form of inventory management system often still seem to struggle with issues that the inventory management system was supposed to resolve.
In a previous article, we gave some insights as to what to look out for when selecting an inventory management system. In this article, we take a deep dive and explore what is required for a successful inventory management implementation.
Causes of failure
Research suggests that the following three are the significant causes of below average results, even though your selected inventory management system has the functionality to address the needs of your business.
- Lack of involvement and commitment from key employees and leaders
- Poor project management
- Lack of or inadequately defined objectives
It starts with your project manager – if they don’t have the necessary understanding of inventory management and your supply chain risks and challenges, you are on the back foot from the getgo. A specialist with these skills on the project management team is essential.
Who should be on your team?
The more involvement and support that you can get from top management, the more likely that the implementation will yield positive results. Then, depending on your company structure, the following persons/departments will be needed.
- Project manager
- IT who understand the table structure of your ERP
- Production planning and Branch Managers (if you have a distribution center)
- A Super-User. This is the person responsible for the ongoing operational management of the inventory management system
The following questions are highly relevant when looking at the correct configuration of the inventory management system.
- What does the supply chain structure (including locations) look like?
- Are there central warehouses (distribution centers)?
- How is the linking to the products and branches supplied by the central warehouse determined?
- How are inter-branch orders placed?
- How many periods of sales history is available or relevant?
- Is there a requirement to manage Supersessions? How is this data maintained, and do these links exist in the ERP?
- Are Bills Of Material used, and are they up to date?
- Do bills differ from location to location?
- How are Supersessions in the Bill of Material managed? Are Supersessions time dependant?
- In a manufacturing environment, are components issued upon the raising of the works order, or are they backflushed at the end of the manufacturing process?
When the data is available in the inventory management system, the first step is to verify that for a snapshot in time, the data in the inventory management system is identical to the data in the ERP.
Implementing an inventory management system is an opportunity to clean up the data. In some cases, the inventory management system itself will have data purity management tools to facilitate this. The data purity measures typically include
- Items with zero cost
- Items with negative cost
- Items with no supplier
- Items with zero lead times
- Invalid Bill Of Material links
- Invalid Supersession links
- Overdue purchase/works orders by days overdue
- Overdue sales orders by days overdue
It’s also essential to monitor stock accuracy.
TIP: The causes of the variances must be established so that action can be taken to resolve any business process flaws uncovered during this process.
Adding the users
It is better not to add users to the inventory management system until the data is well-scrubbed and usable. Introducing users before this time will frustrate them and leave them feeling unconfident in the new application. The person you have identified as the Super-User should be the one to ensure the inventory management passes a basic sanity test and reflects reasonable order recommendations before your users are added.
As soon as your users have been added you should commence with the training process and make sure the users know how to access the online help and other training tools that the inventory management system provides. Set up a user discussion group so they can collaborate, explore and resolve problems that they are experiencing. Group training is an excellent way to ensure that users complete the training together and are at the same level.
Change management is often neglected. Users are comfortable in their old ways, and some may be stubborn and reluctant to move away from their current methods. A change management strategy at the user level is a necessity as they will need guidance and a lot of hand-holding to go through the learning curve and be comfortable with the new system. For example, they may be very comfortable with the spreadsheet they set up a long time ago, and it is naturally not easy to give that up. In this previous blog post, we point out that while a spreadsheet may have been appropriate in the past — in today’s world, where Inventory Management Systems have made great strides, they are no longer adequate. The breakthrough is achieved once users see for themselves how the inventory management system will make their job easier and saves them so much time. This is the stage when they will buy into the new system.
Re-training and training of new users
Refresher training is highly valuable as most users forget over time some of the finer points they were taught. Further to this, new staff coming in must be onboarded with an induction and training program geared for new users.
You want to purchase your inventory management system from a provider that has online help, runs regular webinars, online chat, and who delivers additional training content, perhaps on the theories of inventory management and best practices and not only product training. Be sure to include this in your vetting process.
Assign a team member to define and manage the ongoing monthly, weekly, and daily processes. The benefit of giving each user a written procedure for each task they perform is that they know what to do and know that you are aware of what is expected of them.
Each user must know whom to turn to for first-level support in your company. Please encourage them to use this support channel. Communication within your team is crucial for continued success.
People manage inventory
A successful inventory management implementation isn’t just about selecting the best inventory solution or running a flawless technical implementation. Ultimately, people manage inventory using the available tools. A deliberate, focused change management process is required to help users to stop using old tools like spreadsheets and begin using your new system. Well-trained users who are following simple written procedures will achieve extraordinary results.
Summary of the typical data requirements from the ERP
You should know which fields in your ERP system contain the following data
- Stock on hand (is this the physical stock on hand, or the net available stock after subtracting back orders, manufacturing kit shortages, pick notes for items in the invoicing process, etc.?)
- Does the receipt of a customer order allocate or reserve stock for the order?
- Cost price and whether it is the latest or average cost
- The default supplier code
- Open purchase orders
- Completed purchase order records may be useful to monitor supplier lead time and delivery performance
- Open customer (sales) orders
- Information on minimum order quantities and order multiples imposed by suppliers
- How lead-times are set or calculated and whether or not they are at the supplier level or at a location product level
- Is a Bill Of Materials used? Are the links up to date?
There’s a lot to consider, but spending time ahead of your implementation is the only way to ensure the process goes as well as you want it to. Refer to these guidelines as you start the implementation and revisit them as you go along. The better you manage this process, the sooner you’ll see significant results from your new inventory management system.