Value Chain and E-Strategy – Components of Commercial Value Chain
Introduction All companies undertake series of activities in order to deliver a product to the customers. These series of activities like procurement of raw material, storage, production, distribution, etc. are referred as value chain activities. The function of value chain activities is to add value to product at every stage before it is delivered to […]
Factors Leading to Inventory Inefficiencies
In any company inventory management is one area that the managements always focus on when it comes to improving business efficiencies and cutting costs. An inventory reduction drive always yields results, which are visible and releases cash back into business. Does this mean that inventory management is inefficient? The answer can be a yes and […]
Software Project Management – Meaning and Important Concepts
Introduction This article deals with the Automation project for a maintenance project in a software company. The project involves automating the processes that are discrete and disparate into a centralized monitoring mechanism via a tool developed for this purpose. This article lists the scope and the different aspects like resource and schedule planning along with […]
The Future of Mobility and Opportunities for Investors, Entrepreneurs, and Businesses
The Future of Mobility Mobility or the ability of people to move from place to another has been an integral and vital part of our existence. No matter how much we work from home or live in self sufficient gated communities, we still need to travel once in a while. And for those for whom […]
Understanding the Confidence Interval
The confidence interval is a central concept of hypothesis testing. Although understanding its mathematical and statistical meaning is beyond the scope of this module, one needs to have a fair idea of the concept. Hence, a brief introduction of the confidence interval that is essential for the Six Sigma project team to understand is as […]
Good inventory Management practices in the company help by adding value in terms of having control over and maintaining lean inventory. Inventory should not be too much or too less. Both the situations are bad for the company. However often we see that inventory is not focused upon by the management and hence lot of inefficiencies build up over a period of time without the knowledge of the management. It is only when we start a cost reduction drive that the inventory goof ups and skeletons come out of the cupboard and results in revamping the entire operations.
However those companies, which have always focused on inventory as a principle function and recognized that the inventory effects their sales, as well as the books of accounts and profits, have managed to introduce and improve inventory management processes. Many business models work on lean inventory principle or JIT inventory along with other models like VMI etc. Inventory management to a large extent is dependant upon the supply chain efficiency as well as operations.
Inventory management is a management cum operations function. It requires operational processes to be followed and maintained on the floor and in inventory management systems. Coupled with operations, it entails continuous study; analysis and decision making to control and manage inventory levels.
We have covered below briefly few of the points which when followed, can go a long way in ensuring that the inventory is lean and clean.
Inventory is dependant upon the demand as well as the supply chain delivery time. Often companies follow one stocking policy for all items. For example, all A, B & C categories may be stocking inventory of 15 days, which may not be the right thing that is required. While some items may have a longer lead-time thus affecting the inventory holding, the demand pattern and the hit frequency in terms of past data may show up differently for each of the inventory items. Therefore one standard norm does not suit all and can lead to over stocking of inventory as well as in efficiencies in the system.
Understand the inventory types and the specific characteristics of the items you are carrying. Then build the inventory stocking parameters taking into account the unique characteristics of the particular inventory.
From amongst your inventory list, you will find that all types of materials are not of the same value. Some might be very expensive and need to be carried in stock for a longer period, while another item might have a shorter lead-time and may be fast moving. Quite a few items often have shelf life and hence require separate norms and focus to manage such items.
Getting into the detailed understanding will help you identify the inventory-stocking norm required to manage these characteristics to ensure optimum efficiency. The solution quite often may not be to carry stocks, rather it may involve setting up the customer service standard for such items and specifying a delivery time depending upon the frequency of demand. Quite a few items often have shelf life and hence require separate norms and focus to manage such items.
Companies which are into retail segments and dealing with huge inventories in terms of number of parts as well as value will necessarily need to ensure they practice review of inventory list and clean up operations on ongoing basis.
Popularly known as catalogue management, inventory norms review should be carried out based on detailed study of the sales data, demand pattern, sales cycles etc. Understanding of the business and sales cycles specific to the product category helps one manage inventories better. For example, in case of retail garments, with every season certain skus become redundant no matter how their demand was in the previous months. This helps identify those stocks which are required to be managed at a micro level and identify the high value and fast moving items that need to be always on the radar to avoid stock outs.
It does not help for example to carry standard stocks of all items including low value items as well as high value items. If the low value items are locally available and the lead-time is less, one can cut down on the inventory and change the buying pattern. Similarly high value items too can be managed by cutting down the delivery lead times and in turn reducing inventory.
It helps to periodically study the past data and extrapolate the same to identify slow moving and obsolete items. The dead stocks should be flushed out and active catalogue items should be made available.
Your email address will not be published. Required fields are marked *
