Dear Reader, you don’t need to brace yourself. This is going to be short. So put on your supply chain hat and let’s go!
According to EazyStock, Inventory optimisation is the process of lowering capital investment in inventory while reaching target service-level objectives over a large assortment of stock-keeping units while ensuring demand and supply volatility is under control.
You might be tempted to ask why inventory optimisation is good for your business. Let’s list a few reasons;
• It helps to simplify the purchasing, inventory management and finance work flows
• Helps to track and monitor your entire supply chain process. This is key for continuous improvement.
• Makes forecasting and replenishment a lot easier.
• It’s a good way to minimise costs
• Increases service-levels which can help to foster capacity building
• Helps to increase customer satisfaction and this directly affects bottom-line of course.
• Ensures supply chain visibility
How can SMEs achieve inventory optimisation today
• Invest in pocket friendly inventory management or accounting ERP solutions. eg. Zoho, Quickbooks, ERP Next, Fishbowl etc. Although not as detailed as the likes of SAP MM and Microsoft Dynamics NAV or Navision, they are fantastic and will give you most of what you require for your business right now. They allow you create custom fields, raise purchase and sales orders, invoices, track payments, make sales returns, generate inventory reports, track inventory levels, make inventory adjustments, manage inter-warehouse transfers and even integrate other compatible communication tools.
• Track, Track, Track – it’s something boring that we get tired of hearing or talking about but guess what?…It’s absolutely vital. Create a systematic way to track your goods receipts and transactions. Whether packed, delivered or in-transit inventory. Please do not feel it’s not important.
• Real-time data analytics – Top notch tracking and monitoring means you would have some data. Right? Absolutely. These data should be analysed to give “insightful” information. Haha!. This has to be on-the-go so that all information for decision making is precise and up-to-date. Can be product analysis, inventory analysis, spend or cost analysis. This will also assist you carry out the ABC classification of your products. Of course Class A products are the most important while Class C products are the least important.
• Contingency planning – It is normal to anticipate unforeseen circumstances but what shouldn’t be normal is doing nothing while anticipating them. So building a system that proactively ensures a detailed plan to mitigate these unknown future events will ensure inventory optimisation. This can be done by the implementation of advanced forecasting, waste reduction models and risk management.
• Engage all stakeholders – Stakeholder engagement is perhaps the most undermined aspect of the inventory management process. To attain success, there needs to be a one-team approach which puts external and internal stakeholders on the same page. Like I mentioned in a previous article regarding SRM, the suppliers play vital roles in this, as well as the supply chain and finance factions of your organisation.
• Understanding your demand – My dear friend… This cannot be overemphasised whether you are in the Production/Manufacturing, e-Commerce, Retail or Energy/Oil & Gas industry. This will help to set up advanced forecasting models that will consider market trends, seasonality, competitor activity, macroenvironment evaluation and product life-cycles.
• Determine Reorder Levels and Minimum Order Quantities (MOQs) – This is self-explanatory really. A reorder level is the inventory level point when a new order is placed. It is calculated by multiplying your average daily unit sales or usage by the delivery lead time (in days) and then add your safety stock. On the other hand, MOQ is the minimum quantity of a product which can be purchased from a supplier in a given period. It is imperative to consider these before deploying your replenishment strategies.
So that’s it. I didn’t lie. Short and simple. I hope you learnt one thing or two. Cheers!
