Inventory holds a large capital within an organisation and therefore should be given proper attention. Various industries and organisations require various approaches to inventory management. The type of inventory management strategy to be employed depends on the nature of product, the industry, the value of product, and the volatility of demand. There is no one single method to an effective inventory management. An organisation’s competitive priority and objectives and its financial health all contribute to the type of inventory management policies to be implemented. However, a general rule is that the less inventory held, the less the cost of inventory holding, that in turn contributes to the overall financial benefits of an organisation.

The success of an effective inventory management is the responsibility of all the entire supply chain within an organisation not just the inventory management function. Accuracy in demand forecast, effective supply planning, accurate safety and cycle stock calculation and lead time all contribute to the effectiveness of inventory management.

A well designed warehouse and effective implemented stock picking routing help increase the alignment between physical inventory and system inventory. Bin locations and bin identifiers when accurately implemented and integrated with system item cards and system master data can yield great result in increasing inventory throughput and accuracy. The integration of inventory (items) and the system master data (item cards/default item locations) proactively ensures that throughout the cash to cash process products disappearance and loss are minimised. Proactively implementing a default item location and categorising them according to raw material, semi-finished and finished goodsor other product hierarchy as necessary contributes in fool proofing inventory flows from inadvertently missing (Poka Yoke).

Inventory optimisation involves ensuring that inventories are properly rationed and allocated to where it will do the greatest benefits. A successful inventory optimisation practice engages all relevant stakeholders (suppliers, demand function, inventory control, sales, and customers). Effective communication is also essential and must be frequent. Optimising inventory is a critical skill when a demand driven supply chain has been implemented in an organisation or when a lean manufacturing system has been deployed. Many organisations are focused on compound metrics which only measures a specific activity within the supply chain without integrating other functions and seeing the bigger picture. Unless all other relevant factors are taken into consideration trying to initiate inventory optimisation within your supply chain will yield limited or no result. Want to know more about how to effectively integrate inventory optimisation with lean? Or just want to implement a demand driven supply chain that is correctly integrated with inventory optimisation? Feel free to call on us today.

Supply Chain Consulting


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