BLOG: INVENTORY--A ROOT CAUSE OF COMPANY & SUPPLY CHAIN PROBLEMS

Inventory is a problem in many companies--manufacturers, retailers, grocers, and distributors.  There can be too much inventory being carried AND incurring stock outs at the same time.

The signs include inventory rich and cash poor, amount of working capital tied up, lost investment opportunity with all the inventory, slow inventory turns, too many days of inventory, cash burn, stock outs, doing product substitutions, missed inventory yield maximization, customer perfect order failures, and poor customer service.  And those are just starters.

Accounting calls inventory an asset and places it on the balance sheet.  An asset.  With all the different types of inventory how are they all captured to assess the inventory situation?  There are finished goods, raw materials, work in process, packaging, components, and assemblies.  Plus include return goods.  And what about inventory in transit?  It belongs to the company regardless of how it is booked.  

Traditional cycle counting challenges the ability to stay current on inventory levels. Melded technologies are needed for the end-to-end supply chain as products are added and removed from onl-hand balances.

Inventory level is a function of anticipated sales, received orders, and a buffer for uncertainty.  That uncertainty is a factor of sales, suppliers' performance, lead times, and other related topics.

The need is to speed up the end-to-end movement of inventory.  The faster products move, the more inventory turns, and less inventory is needed/carried.  

A first step to improving the flow is to map movements from suppliers through to delivery to customers or stores.  Some areas that need attention will stand out by the number of days involved.  Note too that improvements will be made both internally and externally.  You may be surprised by the activities inside the company that impede flow--the process, procedures, and departments that are involved--both directly and indirectly.

The internal includes manufacturing and packaging that you may do.  Identifying and removing in-house "barriers" is important to achieving faster product movement.

Another area that needs attention is where to position inventories.  E-commerce has challenged the old ways with aligning warehouses close to customers.  This contrasts with traditional manufacturing and retailing for stores.

Implicit, even mandatory to faster is end-to-end supply chain visibility.  It is difficult to to do achieve greater speed when you cannot see what is happening to it.  The challenge is is the integrating of different systems from different players in the supply chain.  Blind spots are to be found and eliminated.  

A caution here on visibility is the use of track and trace offereings by transport/logistics providers. They are not enough.  The need is to manage the flow, not just see it.  This means start with what starts the flow--purchase orders or customer orders.  The POs are the keys, not containers and trailers of products.  By looking at the transporation, you may miss that the purchase orders--or customer orders--are already late.  Put attention where it is more important.

There will be more blog posts on inventory.  In the meantime, go to  https://www.ltdmgmt.com/inventory-management.php