Date posted: October 19, 2015
How a manufacturing organization handles inventory management has a direct bearing on its likelihood of success. Do it well, and it can depend on having the materials it needs on hand when it needs them; do it poorly, and significant problems ensue.
Brookfield, MA-based TLC Group posted five top best practices for inventory management on its Knowledge Center blog; they’re worth another look:
- Categorize inventory
Portions of your inventory will move faster than others and, therefore, require a different management approach. Indeed, the 80-20 rule applies to the items you stock, so it’s a good idea to categorize inventory and set priorities accordingly. For example, you might want to make sure you have a bigger stock buffer for your fastest moving items. Slower moving items may call for less security. This best practices inventory management approach is sometimes referred to as ABC analysis. Sales numbers are often associated with ABC analysis, but profitability is another way to prioritize.
- Focus on demand forecasting
A company’s demand fluctuates due to seasonality, economic climate and other business trends. A solid forecasting capability can help you plan inventory and maintain appropriate levels, avoiding excess inventory or shortages. Companies can study past sales trends to determine likely future patterns and align inventory management policies to reflect those expected patterns. But there are other techniques to consider (e.g., qualitative assessment and the time series method).
- Apply automation
In particular, smaller manufacturing companies may track inventory via multiple spreadsheets and lack a unified view of stocking levels. A centralized inventory management system, a module included in many ERP products, provides a way to keep accurate inventory counts, deal with unexpected events, avoid overstock situations and boost inventory efficiency. An ERP suite can also automate such tasks as demand forecasting and ABC analysis. Such systems represent the systems side of best practices for inventory management.
- Look for underlying problems
Those who overlook history are bound to repeat it— this holds true for inventory management. If you find that a certain item is perpetually in oversupply, get to the heart of the matter. Consider performing root-cause analysis on excess and obsolete stock and understanding how those stocks are connected to action plans for combating future excesses.
- Consider alternative inventory models
Inventory management covers an array of models, so it makes sense to evaluate new approaches from time to time. If your organization finds it difficult to keep tabs on a certain item, approaches such as vendor-managed inventory (VMI) can help you share the burden.
Are you employing these practices? Others? We’d love to know what approaches you are taking to ensure efficient inventory management.