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Tackling Inventory Challenges

Increasing inventories are a common concern we are hearing lately.  With the pandemic supply chains issues receding, companies are beginning to experience full warehouses and greater percentages of working capital tied up in inventory. 

At the same time, we’re seeing  issues with missing a critical component that is holding up production so how do you balance between these two extremes, particularly when you are dealing with both issues?

#1:    Performance (Metrics)

“What gets measured gets managed.”  The ability to perform real-time inventory tracking and tools to analyze your inventory to the SKU level is critical in identifying opportunities to improve working capital.

  • Inventory velocity (turnover) analysis provides insights that allow operating decisions to be made with precision.
  • Understanding your inventory in detail allows you to make informed purchasing decisions to balance inventory shortfalls with inventory surplus.
  • Detailed inventory analysis can be summarized for executive communication to provide a high degree of confidence in conclusions.
  • Continual monitoring of key metrics is critical to ensuring the health of your inventory and optimizing working capital.

#2:    Processes

Once you understand your inventory metrics, having the right processes in place is critical to managing your inventory positions.

  • Improving the efficiency of procurement processes can improve responsiveness to changes in demand and help manage lead times.
  • Establishing rules around inventory obsolesce along with processes to help track and manage inventory aging can reduce write-offs and give better visibility into your inventory.
  • Continuous inventory review and stock optimization will allow you to ensure you have the right amount of inventory, without over- or under-stocking.
  • Effective sales, inventory, and operations planning (SIOP) processes will enable you to make informed decisions around production and purchasing.

#3:    Planning

Planning for future business needs is the 3rd piece of the puzzle that will allow you to properly manage your inventory levels.

  • Sales information and forecasts that drive your production and purchasing decisions are the best defense against unwanted inventory positions.
  • Financializing your forecasting and planning will enable you to understand the dollar impact of decisions and the resulting effect on working capital.
  • An effective planning process includes a regular and productive communication cadence between sales, operations/supply chain, and finance.
  • A robust SIOP process includes an element of continuous improvement to refine forecasts.

It’s not uncommon for companies to make broad based inventory decisions based on a perceived inventory problem.  Instead, understanding inventory positions in detail along with having effective processes and a robust planning approach will allow you to make informed decisions that will keep inventories optimized over time.