If you prefer a video, click on the video “Next Level Inventory Control.”
Why is Inventory Control important?
How frequently does a product for an order go unfound?
Was the product misplaced or missing?
Whichever excuse, the order was probably shipped short. How often can you ship orders short before your customer looks for another supplier?
Remember, your customer is someone else’s prospect.
Before getting into inventory control, remember that inventory is a large asset on the company books. If raw materials inventory, the inventory used will be to produce finished goods for sale. If finished goods inventory, the inventory used will be for sale.
Inventory control manages a business’s supply and demand of goods and materials. It is an essential aspect of supply chain management and involves forecasting future demand, determining the right mix of products to keep in stock, and tracking inventory levels. Effective inventory control can help a business to minimize excess inventory. Excess inventory can tie up valuable capital and avoid stock-outs, which lead to lost sales.
What measurements can we take to Improve Inventory Control?
Just In Time (JIT)
There are several different methods that businesses can use to control their inventory. One robust method is the use of a just-in-time (JIT) system. Managing the supply of goods is fifty percent of the formula, and the second half of the formula is knowing the expected demand for the product. This will involve sales data and market trends to forecast future demand and adjust inventory levels accordingly.
It may also involve marketing and sales strategies to increase demand for specific products. Having your Inventory Manager as part of the discussion with Marketing and Sales is vital to a smooth workflow. The Inventory Manager can provide insights into any issues with the proposed product promotion.
In the JIT system, we order and receive inventory as needed. We do not order large quantities, taking unnecessary working capital and space. This will reduce the costs associated with storing and managing excess inventory.
Companies worldwide have adopted the JIT system since its development in Japan in the 1950s. Eliminating waste, including excess inventory in the production process, is the objective of the JIT system, and the JIT system is a continuous improvement system.
By reducing the amount of inventory kept on hand, the JIT system will reduce storage and management costs and the risk of the stock becoming obsolete or perishable.
A business must have a well-organized and efficient production process, with clear communication and coordination between different departments and suppliers, to install a JIT system.
While the JIT system can offer significant benefits, it also requires careful planning and systems management. If there are unreliable processes or issues with the supply chain, JIT can lead to delays and disruptions in the overall process.
Additionally, the JIT system may not be suitable for businesses that produce a wide variety of products with fluctuating demand, as it can be challenging to forecast and coordinate the delivery of the necessary materials and goods.
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Computerized Inventory Management System
A computerized inventory management system will track inventory levels and alert the business when it is ready to restock. An automated inventory system can significantly enhance accuracy, efficiency, security, and overall inventory management, making it a valuable tool for many businesses. The advantages of a computerized inventory system over manual systems including:
- Improved accuracy: With a computerized system, there is less chance for errors in data entry or calculation, leading to more accurate inventory levels.
- Increased speed: A computerized system can process data much faster than a manual system, making it easier to keep track of inventory levels in real time.
- Greater efficiency: A computerized system automates many tasks involved in inventory management, such as tracking orders, generating reports, and reordering items, resulting in increased efficiency and productivity.
- Better tracking: A computerized system allows for detailed tracking of inventory items, such as by location, batch, or serial number, making it easier to trace products and identify discrepancies.
- Enhanced security: A computerized system allows for better access controls. Better controls make it easier to limit access to sensitive information and monitor who has made changes to the system.
- Remote Accessibility: A computerized inventory system will allow for remote access by different departments, such as Purchasing, Sales, or vendors and suppliers. This can lead to better communication and coordination.
- Reporting and analysis capabilities: A computerized inventory system will allow for easy generation of reports, which help in analyzing trends, finding areas of improvement, and making informed decisions.
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Kanban
Kanban is a method for managing and improving work across human systems. Initially, people developed Kanban for just-in-time manufacturing, but many other fields, such as software development, healthcare, and transportation, have also applied it.
The core principle of Kanban is to make the flow of work visible. Visibility will expose issues and bottlenecks that are resolvable.
Kanban boards are critical in tracking items through different process stages. Kanban boards are a crucial tool in the Kanban process.
Using Kanban boards to manage the flow of goods and materials through a warehouse facility will optimize visual activity. The goal is to maximize the flow of goods from receiving to shipping, resulting in reduced lead times and efficient ordering from suppliers.
A Kanban system in a warehouse typically starts with a visual representation of the flow of goods. The board or display shows the different stages of the process, such as receiving, putting away, picking, packing, and shipping, and the work items in each stage.
When a bin of goods is received at the warehouse, it is scanned and moved to the put-away location on the Kanban board. Once the bin is put away, a card or electronic signal is sent to the next stage, such as picking or packing, indicating that a bin is available for work.
The Kanban board is used to track the flow of goods and to identify any bottlenecks or delays. If a stage of the process consistently runs low on work items, it may indicate that the preceding stage is not providing enough items to keep up with demand.
Similarly, if a stage of the process is consistently holding on to too many items, it may indicate that the following stage is not able to keep up with the demand. By continuously monitoring and adjusting the flow of goods, the Kanban system aims to optimize the entire process, reducing lead times and improving efficiency goals will be achieved.
The Kanban system can also be used in a Pull System where the downstream process only requests items as needed. This ensures that there is no overproduction or stockpiling of items, which leads to lower inventory costs and space utilization.
Overall, Kanban is a powerful tool for managing the flow of goods in a warehouse, enabling teams to work more efficiently, reduce lead times and improve customer service.
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Cycle Counting
Cycle Counting is another method of Inventory Control. Cycle Counting is a process that will enhance your business to the next level. How is this possible?
Cycle Counting can reveal solvable issues within your processes.
Cycle Counting ensures that inbound and outbound products are processed accurately.
You can provide accurate information by updating your automated system with cycle counts.
As an ongoing process, Cycle Counting will ensure Purchasing has accurate data to purchase in the future.
Cycle Counting will have a positive impact on any business. Consider combining the A-B-C Analysis with Cycle Counting.
Below are other Blog Posts that discuss Cycle Counting:
- 10 Best Practices of Inventory Management
- Why are Policies and Procedures Important In Business?
- Unlocking the Secrets to an Effective and Successful Inventory System
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A-B-C / Pareto Analysis
A-B-C Analysis, also known as Pareto Analysis, is an inventory management technique used to classify and prioritize items within a business’s inventory. The Pareto principle states that 80% of effects come from 20% of causes, and the A-B-C Analysis is based on this principle.
By identifying the “A” items and focusing on managing them more closely, companies can optimize their inventory management efforts and improve their bottom line.
The A-B-C Analysis will use sales and gross profit information. Then use this data to classify each item into one of three categories: A, B, or C.
- “A” items are the top 20% of products that generate 80% of sales and profit, and these are typically the high-demand, high-profit products critical to the business’s success. These items should be monitored and managed, keeping adequate stock levels to avoid stockouts.
- “B” items are the next 30% of products that generate 15% of sales and profit. These items have moderate demand and profit margins and are essential for the business but may not require as much management attention as “A” items.
- “C” items are the remaining 50% of products that generate only 5% of the sales and profit. These items typically have low demand and profit margins and may be less critical to the business’s success. These items can be managed more loosely and may require less frequent ordering.
With A-B-C Analysis, businesses can identify their most important products and focus their inventory management efforts on those products while also being aware of their less essential items, knowing they don’t need to put that much effort into these items. This can reduce waste, increase efficiency, and improve overall financial performance.
It’s important to evaluate the A-B-C analysis periodically to ensure the correctness of the classification, as the environment and market can change quickly, affecting the products’ status.
Combining the A-B-C Analysis with other inventory management techniques, such as JIT or EOQ (the link is clickable), creates an even more effective inventory management strategy.
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Many industries use advanced systems like Lean and Six Sigma. Today, Emergency rooms and personal health use Lean, Kaizen, and Six Sigma principles. It is about the reduction and elimination of waste.
Effective inventory control is vital for businesses of all sizes, as it helps to ensure that they have the right products in the right quantities at the right time to meet customer demand. It can also help to reduce costs by minimizing excess inventory and avoiding stock-outs. Yet, businesses must strike a balance between having too much and too little inventory, as both can have negative consequences. High inventory levels will tie up working capital, which can lead to higher storage costs.
In summary, inventory control manages a business’s supply and demand of goods and materials. It involves forecasting future demand, determining the right mix of products to keep in stock, and tracking inventory levels. It is an essential aspect of supply chain management and helps businesses to minimize excess inventory, reduce costs, and avoid stock-outs.
“Inventory Control = More Profit, = More Cash” is another video on Inventory Control.
We would like to hear from you. Did you find this blog post helpful? Why do you feel Inventory Control is Important? What measures do you take in Inventory Control? Please leave your comments below.
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