Inventory management is the science of efficiently balancing inventory cost with product availability. There are a host of reasons why businesses have to hold inventory. Typically, most businesses hold inventory to ensure continued supply where demand and supply rates differ (known as a decoupling point).
There are, of course, other reasons to hold inventory including counteracting seasonal production cycles, servicing non-forecast demand and securing bulk purchase discounts. Regardless of the reason for holding inventory, the basic principle of inventory management is to balance the level of stock held with the level of service required; in essence, inventory costs money and should be minimised wherever possible.
Inventory management is very much a science. However, there are still many businesses that use rules of thumb to calculate inventory targets, such as holding a number of weeks average supply, or allowing arbitrary ‘just in case’ stock to be held.
We have significant experience in inventory management, from forecasting demand and aligning the inventory policy through to stock location, handling and storage decisions. We can help clients understand the optimal level of inventory for their business, and how that inventory can be stored, retrieved and replenished in the most cost and service efficient manner. Areas where our inventory management consultants can support clients include:
Many businesses operate to what is known as a Reorder Point (ROP) inventory management technique.
The ROP technique is most suited to operations where the demand for a product is perpetual (although demand levels may be uncertain) and the ROP methodology works to constantly minimise inventory whilst ensuring a targeted level of product availability.
You can read more about inventory optimisation using the ROP technique in our section on Inventory Optimisation.
Inventory management is concerned with balancing inventory costs against product availability and service. However, the relationship between inventory cost and service is not binary – some products are more critical than others, and consequently those products may require higher product availability levels.
To ensure that cash invested in inventory is assigned in proportion to a products importance, an ‘ABC analysis’ needs to be undertaken. Our inventory consultants are able to rapidly undertake an ABC classification, and design and implement a portfolio review process. The review and process will ensure that every product in the portfolio is accurately assessed against a range of criteria including margin, sales frequency, strategic fit and volume.
Inventory levels can be calculated using historical transactions and/or sales forecasts. As a matter of truly using inventory to protect the service of a business it is better to use both.
To have a trusted and useful sales forecast it is critical to having a meaningful demand planning process. The demand planning process needs to ensure that the level of forecast error is captured and built into the inventory management calculations. You can read more about how we can design and deliver a demand planning process in our section on Demand Forecasting.
Our inventory consultants can perform a rapid audit of your inventory management policy, and policy adherence.
This audit will provide the baseline against which the inventory consultant can identify the improvement required to meet required practice. The inventory management audit will include a wide range of checks including portfolio management, measurement of forecast accuracy, slow-moving and obsolescence management, stock availability and methods used to calculate inventory targets.
If you have concerns over the efficiency of your warehouse or want to know how to meet higher throughput, contact our experts today. We’re here to help. You can call us on +256709299755 or use our contact form:
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