Inventory is often the single largest asset on a company’s balance sheet and your inventory management process can have a huge impact on your organization’s bottom line. Understandably, the inventory management process is getting a lot of attention by organizations looking to squeeze out some extra profit in a challenging marketplace.
When you think about the priorities of your inventory management process, what’s the first thing that comes to mind? Is it reducing excess and obsolete? Improving on time delivery performance? Balancing stock between distribution centers? Strategic reduction of your lead times to help obtain and fulfill more customer orders? Now what’s your next priority? And the one after that? Your first answer is likely dependent on your industry, the size of your organization, your role, and your company’s corporate strategies. Your second answer, if you have one, is typically dependent on the maturity of your inventory management process. Finance and business management will prioritize inventory reduction to increase profitability. Customer service representatives prioritize stock-out reductions to improve customer satisfaction. Manufacturing operations needs just the right parts available at just the right time. The inventory manager is often caught between multiple groups with conflicting priorities and becomes an expert firefighter, skilled at supporting whoever complains the loudest. It’s easy for an inventory manager to get tunnel vision and give one metric too high a priority over others.
More mature companies will help the inventory manager out and define some clear corporate priorities, e.g. target inventory turns and customer service levels, to facilitate better inventory decisions. This can complicate things further as inventory decisions often require balance between these conflicting goals. The inventory quality ratio is emerging as a powerful tool to combine these priorities into a single measurement. Is that enough to find the right balance? Does your planning system help you analyze the trade-offs between competing priorities when making policy changes? Do your metrics and KPIs provide insight that help you improve the quality of your inventory investment?
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This is the first of a multi-part blog series focused on the inventory management process. Over the coming weeks we’ll share your feedback and my thoughts on the key improvement levers, metrics, and technology enablers that can help you see your inventory as an asset, rather than a liability. Stay tuned for the next post on the roles and responsibilities of an inventory manager.
Interested in learning more about inventory management? Check out the rest of the blogs in this series.