Nov 17, 2015
Is poor management of your Inventory Management System a risk to your business?
Virtually every company that holds inventory to provide an acceptable level of service to its customers, has experienced the negative effects of both unhappy customers and the loss of a customer as a result of stock-outs. At the same time, there will be items in the warehouse that have become obsolete and have to be written off.
To improve and sustain
In order to improve inventory balance, many companies implement an Inventory Management System (IMS). However, these systems alone will not address the inventory imbalances; the people that use these systems are absolutely vital to achieving success.
Causes of degradation of results over time
While not evident in every business that has implemented an IMS, here are some of the reasons why companies who have implemented an IMS do not achieve the outcomes they set out to achieve.
The initial focus wanes
During the implementation of an IMS, considerable effort and focus is required to configure the system, clean up all the data issues and train users to apply the system to make a difference. Users are highly trained, engaged and adopt the new IMS.
Over time the enthusiasm wanes, people change roles and the ongoing data maintenance is neglected. Handover of skills from the initial user(s) to subsequent users is poorly done, resulting in the investment in an IMS not being realised through sustained improvement in inventory performance.
Discipline, discipline, discipline
Achieving sustainable results requires an ongoing focus on the daily, weekly and monthly tasks associated with stock-outs, potential stock-outs, excess stock and surplus orders. The most important task is the placing of new, optimal orders on the suppliers.
The simple discipline of focussing on these key inventory exceptions and taking actions to minimise their impact on the business, results in:
- Improvements in product availability and fill rate
- Reduction in overall inventory investment
- Less emergency actions and fire fighting
However, often these simple disciplines are neglected and inventory performance is negatively impacted as a result.
Lack of management involvement and direction
Many of the tasks associated with inventory are at an operational level, with little or no management involvement. Management are totally dependent upon a “Custodian” of the process to ensure that the correct tasks are completed on time.
It is quite common in small businesses for a single person to use the IMS. For obvious reasons, this is very risky to the business and can have severe consequences should that person leave the business without sufficient handover to a replacement person.
Typically, stock levels, stock-outs and customer complaints slowly increase to the point where management start asking questions and only then realise what has happened. At this stage, the situation is largely out of control and expensive corrective action is required. This often involves contracting an external consultant to essentially re-implement the IMS and retrain the user(s).
Ongoing management involvement in reviewing the performance of their inventory and keeping their finger on the pulse is vital to the ongoing success of an IMS.
Mitigation of the risks
Just as the IMS is designed to assist with the management of the supply chain risk, so too must the risk inherent in the management of the IMS be addressed. This must include:
- The loss of critical skills due to staff turnover; ensuring that (wherever possible) a handover period exists for the transfer of skills to the replacement person, enabling them to take over the role with minimum disruption.
- Simple discipline and focus; the creation of simple written procedures for all the important tasks to be done daily, weekly and monthly.
- Ongoing data maintenance; the creation of reports that monitor key data issues that have a significant impact on inventory performance.
- Focus on inventory performance; publishing of key performance indicators that show that the inventory is in good shape help to keep the focus and maintain the enthusiasm.
The above will go a long way towards ensuring that you achieve ongoing sustainable results.
Most importantly though, management buy-in, support and involvement is key!