The path to clean and healthy inventory
Stock-outs, back-orders, overstocks, short picks due to lost and missing inventory, searching the warehouse for missing stock, credit claims for short shipments, high value stock write off after stock take are like the symptoms of a disease. If your business is suffering from these conditions you must take action to improve the performance of your inventory in order to survive in the competitive environment of the 21st century. Logistics Help will show you how.
Good inventory management means:
- Good Inventory Planning
- When and how much stock should be purchased and
- How much stock should you hold and where should you hold it.
- Good management of physical inventory as it passes through your hands
- Accurate recording of all inventory movements in your business system
- Appropriate physical handling and storage and shipping according to the requirements of each type of product
- Improving your business processes by applying the High Performance Logistics Model
Do you have a clear inventory strategy?
Your inventory items are like the tenants in your warehouse – are they paying enough rent or costing you money like an illegal squatter?
Ask yourself these key questions:
- Does your inventory strategy support or hinder your business?
- Do you have inventory in the right place at the right time to satisfy your customers
- What is your current service level? (how many back-orders do you have?)
- Are you applying the right purchasing strategies across your product range?
- What are you promising to your customers?
- Do they expect you to have stock available for immediate delivery?
- Are they prepared to wait a few days whilst you source the product from overseas or local suppliers because they know you are the cheapest?
- Do you communicate your delivery promise to your customers so that they understand what will happen before they confirm their order or complete the online checkout?
- Are your customers getting what you promised?
- Are you customers happy with what you are currently giving them?
What can I do to improve my inventory planning?
Inventory planning will impact every other supply chain activity and affect the value an organisation provides to their market.
Incorrect decisions and poor inventory planning may lead to:
- A flooded or empty warehouse resulting in:
- low warehouse productivity,
- off-site storage costs,
- shipping delays,
- multiple shipments for the same sales order.
- Lost sales and unacceptable levels of backorders,
- Giving a free kick to your competition as they pick up your lost sales,
- Permanent loss of market reputation and business value as customers abandon you for your competition,
- A warehouse full of slow moving and obsolete stock that lowers your return on investment from your warehouse and inventory,
- Higher costs on major projects (yours or your customers) due to late deliveries of supplies.
Inventory planning must be in line with your business strategy. Inventory planning is at the heart of fulfilling your marketing promise to your customers. If you are having problems with poor service due to stock-outs and a warehouse clogged with over-stocks there are a number things you can do that will give you a high payback on the effort.
- Implement a forecast based inventory planning system such as Autostock to improve the accuracy of your decisions on how much stock to buy.
- Number one of the top three investments you can make in your logistics operations.
- Manage by exception. Use the system to highlight items with irregular demand or that are too new to forecast. Get market information from the sales team to over-ride the forecast.
- Measure forecast accuracy. This will tell you how well your Sales & Operations Planning process is working.
- Integrate the forecasting system to your purchasing system. This will eliminate data entry and allow you to focus more on the key decisions around your forecasting.
- Make sure you are using the correct values to calculate your purchases. Your system should take account of supplier lead time, internal lead times, purchasing intervals and safety stock. There are a number of models to use. Find the one that suits your situation and system capability.
- Adjust safety stock to manage service level. What stock availability do your customers expect from you? Keep more safety stock of critical and unpredictable items. Lower safety stock for items with predictable demand and regular supply (these are usually your biggest sellers). This will maximise the value of your inventory investment. You will be keeping the right amount of stock to meet your market demand.
- Implement a Sales and Operations planning process to make sure you are feeding the best available market information into your forecasting process to make accurate decisions
- Give your sales team access to your forecasting systems to input future sales estimates and promotional activity
- Meet regularly to discuss the forecast performance and improve understanding between the forecasting and sales teams.
- Review and measure the performance of your inventory.
- What is your inventory ROI? (gross sales/cost of sales)
- What are your stock turns? (gross sales/ cost of stock on hand)
- Look at these metrics:
- across all products,
- by product group,
- by individual product,
- by vendor.
- Make some decisions about how to improve these numbers
- Face up to your slow moving and obsolete inventory
- What will be your definition of slow moving stock?
- Flag all your obsolete stock
- Develop a slow moving and obsolete stock report
- Decide what to do with it – dead stock is the squatter in your warehouse, it is keeping out paying tenants (new products that customer want!)
- Measure your annual stock write off due to obsolescence or expiry
- How are you adjusting your purchasing decisions in the light of the above information?
- A flooded or empty warehouse resulting in: