Fundamentals of Executing Effective Inventory Management

Effective inventory management is critical to all operations. It can have a different definition from business to business, but certain core practices ensure success whether a company is supplying a retail store or manufacturing shipping peanuts.

No operation can function properly without knowing what is in stock and where to find it. Achieving efficient inventory processes starts with a culture of understanding and accountability.

i) Inventory Accuracy Starts at Receiving

The most critical stage of effective inventory management is the receiving dock. Errors made in receiving flow through the building, creating other problems along the way. As with any aspect of inventory control, strong managers look keenly at the three pillars of fulfillment control: people, system, and process.

Your receivers must be properly trained. They must understand the standards for accuracy and record management.

ii) Leverage Technology

Data automation provides engineering constraints on errors. Us of RF scanning and RF ID technology goes a long way to reducing the errors from manual record keeping. Companies can gain a lot of efficiency and accuracy in receiving by incorporating ASN data into your receiving system.

ASN is Advance Ship Notices. This is where vendors send data electronically regarding the contents of the incoming shipment.

This reduces the chances of receiving to the wrong purchase order or the wrong items. Finally, you must have established processes for receiving, cycle counting, auditing and problem solving when exceptions arise. Effective inventory management must be measurable.

iii) Establish Expectations

With labor and inventory both a huge component of overall cost, businesses must decide up front what level of accuracy is necessary for success. In some environments, there may not be a return on investment past 90% inventory accuracy.

In others, anything less that 100% may cause a critical process failure. Once those expectations are in place, you must follow the old adage of inspect what you expect. As with many business processes, effective inventory management starts with effective front-line leadership.

Accurate receiving, appropriate technology, and proper standards enforced through cycle counts and auditing are the key support structures to effective inventory management. With these in place, your business will have the visibility necessary to increase efficiency and profitability.

Without proper attention, your business is at risk for a broad range of potential process failures, from angry customers to stopped production lines


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