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The Inventory Mentor

Apr 24, 2014


Is Inventory Management as important as Inventory Control?

As a business owner, you require an inventory management system that insures the next order you place is the right quantity both for your customers and for your business.

Frankly, without an inventory management system you do not know whether or not the next order that your Buyer or even you place, will result in excess stock or a stock out.

An effective inventory management system:

  • Identifies the most important items through a classification process so that the time spent managing items yields the maximum results
  • Generates accurate statistical forecasts
  • Allows manual forecast adjustments where required
  • Measures the risk factors in the supply chain
  • Sets optimal safety stock levels to cover the risk
  • Calculates optimal ordering levels
  • Generates optimal replenishment orders

But that is only the start of the process and this is where an inventory management system plays a key role.

  • Due to changes in customer demand patterns, forecast variances must be used to highlight where forecasts must be adjusted – the sooner the better.
  • Further forecast adjustments will be required to accommodate the impact of lost customers as well as new customers
  • Supply factors such as lead times and minimum order quantities will change
  • All of the above must dynamically adjust the safety stock levels
  • The re-order (‘minimum’) level andĀ  order-up-to (‘maximum’) levels must automatically adjust to accommodate these changes

The management system must include an inventory specific dashboard to prioritize and:

  • Identify stock-outs – the most critical of all problems
  • Identify potential stock-out items so that you can pro-actively respond and prevent further stock-outs
  • Identify purchase orders that due to changes in demand are now surplus to requirements
  • Calculate and identify excess stock items

With the right inventory management system, all of the above will be achieved in the minimum of time and with the least effort.

So, what do Inventory Control Systems do?

They include Warehouse management systems to track the movement of inventory through the full warehouse cycle from:

  • Receiving to
  • Binning to
  • Picking to
  • Shipping

Other key requirements include:

  • Stock taking
  • Cycle counting
  • Space and volume planning
  • People
  • Fulfillment times
  • Bar-coding systems
  • Radio Frequency Identification (RFID) systems
  • Real time recording of transactions
As important as all these inventory control measures are, they do not place you, the owner or manager in the position of knowing what inventory levels and how much safety stock is appropriate for your business. Placing the next order without this insight is simply a guessing game.

It is obvious that the inventory management and inventory control systems are both very important to any business and that they fulfill totally different requirements. One without the other will result is poor inventory performance of this valuable asset.