For most companies, inventory management is a crucial yet cumbersome task. While many prefer to keep this task in-house, it helps to have a trusted external advisor for the job. Managing inventory well is one of the easiest way to reduce supply chain costs. Here are some of issues you can face when your inventory management is lacking in certain areas.
- High working capital due to mismanaged inventory control
- Slow movement of goods due to mistakes in demand planning
- Expired inventory which needs liquidation
- Errors in material planning leading to shortages
- Frequent in-warehouse transfers due to wrongful allocation, leading to unwanted transportation costs
In case you are facing any of the above or more, a bottom up look at your inventory management systems will show that a lot can be lost due to human error. The solution? A completely automated inventory management system. Here are a few challenges, that PREVALENT SCM considers when automating your inventory management systems.
- Inventory Levels: Companies need to always ensure that hold the right levels of inventory with them so that they fulfil customer demand yet ensure that not much that you sink costs into it. The objective is optimizing it and minimizes the capital costs.
- Cost of Inventory: Continuing with the above, holding inventory can lead to costs such as:
- Cost of Facility: These include warehouse rentals, owned & leased equipment, overheads and license costs.
- Human Resource: Wage paid to employees to hold, unload and reload goods
- Financial Cost: The loss of interest and other earnings due to capital being stuck in dead inventory
- Cost of Management: These include white collar employee salaries
- Cost of Procurement: Cost of sourcing and associated transportation
- Turnover of Inventory: Generally, quick turning inventory leads to lower costs. However, it also depends on the kind of industry we are dealing with. For example, consumer durables have a lower turnover compared to FMCG goods. It is important to maintain inventories such that turnover is frequent and in line with the industry average.
- Accurate Measurement of Inventory: Owning to human error, many a times, the accuracy of inventory counting is affected. This can lead to repercussion on time, cost and at times reputation. Thus, every stage from procurement, holding and inventory outflow, needs to be measured properly. We achieve this via automating the process
- Theft & Loss: Theft of goods and loss due to unavoidable circumstances affects the inventory count & inventory levels. Hence it is important to accommodate and keep a buffer for such circumstances.
- Inflexible Systems: A company needs to be able to adapt to changing business environments. This can mean, being able to make changes in a span of a few weeks in response to challenges that are thrown up in a live business environment.
To effectively address these challenges and more, we ensure the following:
Understanding Product Categories: Here it is important to know that different products have different life cycles. The same is applicable for various SKUs. When we sign on a customer, we assist them first in recognizing and assigning their SKUs and products in to different categories. From fastest to the slowest turnover. The segregation can also take place as per the criticality of the component. For example, products such as important spares and medical supplies are needed on an urgent basis and need to be supplied on same day or the next. The next category can be non-critical items such as durables and cosmetics. These can be handled basis pre-fixed schedules. Third category goods are those with longer shelf lives such as furniture, perfumes etc. An additional layer of segregation can be made basis the medium of distribution. This is simply, smart inventory control.
Recognize Profitable Products: Here application of the Pareto principle helps. A rough scan can help us determine which 20% of your product is generating 80% of your sales. Further we determine what kind of customers are buying this product- this is easy with e-commerce companies. This kind of exercise aided by historical data helps us better manage the inventory that counts. You can also then drill down into this profitable 20% to see turnover, operational bottlenecks etc. The idea is to focus on the parts that matter & leverage it to your advantage.
Vendor Operated SC Segments: A mistake that most companies make is to think that their supply chain ends where their operational control does. But at PREVALENT, we think a bit differently. Companies can work with their suppliers to ensure Just in Time (JIT) system of material supply to cut down on holding costs. The vendor will need to be trained well to do this part but the time spent here, will go a long way in suitably handling the profit & loss of the company.
Just in Time (JIT) Approach: A highly effective way to keep inventory costs down is to use the Just in Time system of inventory management, where raw materials can be procured only upon receiving an order and products are manufactured right in time to dispatch them off to the market of demand. This, aides with efficient storage of goods and a quick response to market demand. While some might say, it is an idealistic scenario, there are hundreds of companies across the world who are using this approach in their logistics planning. Some examples are, usage in the fashion industry, technological industry, gaming and computers. This is an excellent route to use when products are launched in small batches and there an imminent change in their designs and form.
Forecasting Inventory: Forecasting is a highly useful and effective tool in managing inventory. It is of course important that it is managed by experts who know the industry and have sufficient historical data. Our team of specialists can help key decision makers in your company, to create models that will help in better forecasting and making a master schedule for production as per that.
Smart Consultative Approach: There are enough and more enterprise resource planning (ERP) tools in the market with a plethora of features and facilities. But many of these vendors follow a use-as-is approach where companies are made to use ready templates. At PREVALENT SCM, we follow a more consultative approach wherein, there is a panel of experts which understand your company and its needs, and only then suggest solutions. Our strategic planning initiatives are customizable to the highest degree and promise results that are significant.