Mar 28, 2019
Incorrect levels drive excess inventory
It may seem a bit obvious to say that incorrect levels can lead to excess inventory, but let’s dive in on this for just a minute. Levels are determined by various planning inputs, and it’s those inputs that need to be examined. No matter the applied methodology in calculating levels, if the inputs are off, the end result will also be off. To fix incorrect levels and refine the inventory planning process, we need to check the inputs first.
Before the reign of the desktop computer, most businesses relied on simple processes to determine their inventory levels. Often, a planner’s gut feeling provided most of the ordering insights; something like “there’s a big order coming in so let’s plan for that” or “these bins are looking a little light, let’s top them off.”
As companies and supply chains grow, more people get involved and more complexities are on the table. This highlights why it is so important to have a source of truth for your levels. When you have inaccurate data, it’s nearly impossible to do basic warehouse tasks, like filling orders on time and replenishing your stock. Even if you have an ERP system in place, you need the tools to gain visibility into your stock levels. All of your activities and decisions start there.
Once you have a clear understanding of your levels, you can make smarter replenishment choices. To do this properly, it is critical to stay on top of product lead times, including the status of ongoing orders that are en route, so that no unnecessary orders are placed. The way lead times interact with safety stock is key, as well. And having a solid safety stock policy means you can cut down on excess inventory – which will deliver a serious boost in profitability for your business.
With bad inputs, the process is going to be out of whack, regardless of the tools used to forecast. For those on spreadsheets doing calculations and managing levels as best they can, there is no hope of improving the data or the process. Weak data purity is not a reason to keep using the same old process and tools; it’s a wake-up call to improve the warehouse and the business.
With excess inventory, business growth is stymied. But with a balanced inventory, a business is free to grow and tackle new opportunities. Achieving that balance may sound complex, but it is an absolute necessity for businesses with inventory.
Relying on outdated tools and methods is guaranteed to prevent a balanced warehouse. What do you need to improve your inventory? Are you on top of your inventory levels, and what does your excess stock profile look like currently? If you’re not sure, it’s time to make some improvements.