Inventory Management

The importance of good Inventory Management can’t be stressed enough. Wrong inventory decisions lead to an increase in Working Capital, to potential Service issues towards the customers and higher operational costs, be it expediting costs, storage costs, set up costs or even efficiency losses.

In many cases it already starts with a misalignment at management level on the Inventory Strategy that needs to be developed. It is not about minimizing the inventory levels, but about making management choices with regards to the relative importance of Inventory levels compared to Customer Service and Operational Efficiency. This leads to an Optimal Inventory that serves the Strategic goals of the company.

Moreover, these choices have to be cleared out for different product types, for different markets and for different supply conditions. A company cannot be everything for everybody, nor have one single Supply Chain approach for all type of markets and suppliers. A key decision lies in determining where to put inventories and safety stocks in the Supply Chain without forgetting that the inventory easiest to manage is the one you don’t have.

In Inventory management the maintenance of the correct parameters is quite an issue in most companies. Usually parameters are set up during implementation of the current ERP system and they remain untouched for a long period of time. Strangely enough, a lot of companies assume that the world doesn’t really change for their inventories. Others use cumbersome Excel calculations that need to be reviewed manually which makes a regular maintenance complicated. Slow or inexistent reviews of the inventory parameters results in misalignment of the inventory with overstocks and potential service issues.