How sophisticated is your inventory control process? Is it a tool that you can use for forecasting and planning, or are you happy if you can just keep your warehouse from emptying out before the next materials delivery?
Front line employees are trained on the basics of inventory management. The general rule is that the shelves shouldn’t be empty, but you also shouldn’t have more product than you need to satisfy demand. If you expand on that principle a bit more, there are really 3 guidelines to follow:
- Don’t let inventory collect dust.
- Don’t run out of fast turning inventory.
- Make sure your inventory leaves the shelves.
These three basic rules are easy to grasp, useful to know, and are the cornerstone of advanced planning and forecasting. They may be all you ever need to understand if you own a corner store. But these rules won’t take you much further than that without more analysis.
With a growing business, you need more sophisticated inventory control techniques, particularly as you get into hundreds or thousands of SKUs. You’re going to need real inventory visibility.
The Ebb and Flow of Inventory
It doesn’t matter if you’re dealing in cosmetics, steel pipes, electronics or parts replenishment – your inventory needs ebb and flow according to the demands of your market. For consumer outlets, those ups and downs are often seasonally predictable and easy to confirm. For example, electronics sell big for the holidays, vacation gear for the summer and new clothes fly off the shelves come autumn. Other businesses also have inventory cycles, but they aren’t as clearly visible, at least to the naked eye.
A customized planning module takes the guesswork out of inventory forecasting. Instead of just identifying the safe minimum and maximum levels for various items, a unified system allows you to peer inside the process and get real visibility into what’s going on with your inventory.
Better Visibility Leads to Better Planning
Let’s look at a fictional company, Spatula City. The company has retail outlets that sell the largest variety of spatulas available worldwide. They also manufacture spatulas and work with both material providers and spatula artisans all over the globe.
Spatula City has just implemented an ERP (Enterprise Resource Planning) system, complete with an inventory planning module. Now, instead of simply being able to track the materials cost and profit margin for each kind of spatula, this data is fully integrated with labour, shipping, forecasting and other components of the business system. The CFO can now recognize that mahogany-handled spatulas, long considered a holiday staple, actually sell more leading up to Valentine’s Day. On the other hand, while the company’s sand-proof beach spatula is a popular summer item, the amount of labour expended on assembly means that they’re losing money on the item.
With a greater level of visibility, Spatula City can use this information in its negotiations with the Federation of Spatula Testers, when setting prices for a line of spatulas they manufactur exclusively for big box outlets. This information also influences the development of long-term marketing strategies to gain market share from meat forks and egg timers.
The Impact of Visibility
Increased visibility into inventory means better planning overall. Real-time reports that show what materials have arrived, what’s been assembled, and what’s been shipped can be correlated with labour, market trends and material costs to help make informed supply chain decisions.
Simply stated, visibility replaces the guesswork with hard data.
Hopefully this article has triggered some critical thinking to help you answer the big question – how well do you know your inventory? Explore the topic further in our free eBook – it’s designed as a guide to help small and mid-size distributors gain control of their inventory. Get your copy of the eBook now.