Inventory Control: Improving the Bottom Line
Inventory control requires the tracking of all parts
and materials purchased, products processed, and
products stored and ready for shipment. Having a
sophisticated tracking system alone does not improve
your bottom line, it is how you use the information
that your system provides.
If your job responsibilities involve inventory
control, you know how critical the function is to
business success and the complexities involved in
planning, executing and controlling your supply
chain network.
From a financial perspective, inventory control is
no small matter. Oftentimes, inventory is the
largest asset item on a manufacturer’s or
distributor’s balance sheet. As a result, there is a
lot of management emphasis on keeping inventories
down so they do not consume too much cash. The
objectives of inventory reduction and minimization
are more easily accomplished with modern inventory
management processes that are working effectively.
Inventory Control Problems
In actual practice the vast majority of manufacturing
and distribution companies suffer from lower customer
service, higher costs and excessive inventories than are
necessary. Inventory control problems are usually the
result of using poor processes, practices and antiquated
support systems. The inventory management process is
much more complex than the uninitiated understand.
In fact, in many companies the inventory control
department is perceived as little more than a clerical
function. When this is the case, the fact is the
function is probably not very effective.
The likely result of this approach to inventory control
is lots of material shortages, excessive inventories,
high costs and poor customer service. For example,
if a customer orders a product that requires a
manufacturer to acquire 20 part numbers to assemble a
product and then, only 19 of the 20 part numbers are
available, you have nineteen part numbers which are
excess inventory. Worse, the product can’t be
shipped to create revenue and the customer is not
serviced. Think for a moment about the
complexities of making products that require hundreds
and maybe thousands of part numbers to be available in
the right quantity, at the right place and at the right
time to make products to satisfy customer orders.
It is a complex network to control and a set of
inventory management tasks that must be performed with
precision.
What Should Be Done?
Too much inventory and not high enough customer service
is very common, but unnecessary. There are proven
methods that can help you accurately project customer
demand and to calculate the inventory you will need to
meet your defined level of customer service. Using
the right techniques for sales forecasting and inventory
management will allow you to monitor changes and respond
to alerts when action needs to be taken. The right
approach to inventory control can produce dramatic
benefits in customer service with lower inventory, no
matter how complex your network is.
Modern inventory management processes utilize new
and more refined techniques that provide for dynamic
optimization of inventories to maximize customer
service with decreased inventory and lower costs.
These improved approaches to inventory management
are of major consequence to overall competitiveness
where the highest level of customer service and
delivered value can favorably impact market share
and profits.
Understanding the Process
Overall inventory control crosses a number of
functions. The inventory control process can be
divided into the following general categories:
Demand management which covers the processes for
sales and operations planning, sales forecasting and
finished goods inventory deployment planning.
1.
Inventory planning and ordering which is
often accomplished with material requirements
planning, often referred to by its acronym MRP or in
a lean manufacturing environment kanban ordering is
used to effect deliveries of material.
2.
Inventory optimization systems are being
advocated by some as the supply chain management
mechanism that should be used to mathematically
calculate where inventory should be deployed to
satisfy predetermined supply chain management
objectives.
3.
Physical inventory control is a phrase that
describes the receiving, movement, stocking and
overall physical control of inventories.
Effective inventory control is a vital function to
help insure the success of manufacturing and
distribution companies. The effectiveness of
inventory control is directly measurable by how
successful a company is in providing high levels of
customer service, low inventory investment, maximum
throughput and low costs. Certainly, an area where
management should apply a philosophy of aggressive
improvement.
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