by Joe LaMantia and Ron Quick
When properly managed and kept lean, inventory is a crucial asset for your business. However, excess levels of inventory and poor strategy to manage it results in your inventory quickly becoming a significant – although avoidable – cost.
Tying up working capital in surplus stock is simply not an efficient business practice. Let’s consider some common roadblocks to effectively reducing inventory, methods for working around those obstacles, and the many benefits of a lean approach to inventory.
While every business is different, there are a handful of common reasons why companies tend to keep more inventory on hand than is needed. Identifying them is the first step to a more effective strategy that keeps your stock levels under control.
While there’s logic behind many of the reasons used to maintain a higher than optimal inventory level, the costs of doing so can easily eat into the savings realized in other areas. A thoughtful, well-planned move to a lean inventory strategy can address many of these concerns at their root, offering improved performance and more financial flexibility.
In all cases, dependable, agile analytical tools and supply chain platforms are vital for making these transitions. These solutions offer the information, analysis and oversight needed to make the necessary shifts and start realizing the benefits.
As is the case with any substantial change to operations, a shift in company culture and positive attitudes toward adoption among leaders and staff are critical for beneficial reductions in inventory.
A move to a lean supply chain culture and its associated practices as a whole is critical for realizing the specific benefit of reduced inventory. This foundational cultural change, focused on maximizing value, strongly aligns with reducing unnecessary inventory and maintaining a streamlined approach to it in the long term. It allows your business to essentially trade information for inventory, using increased availability of data and analysis to scale back the need to maintain large stocks of items.
Sales, finance and operations teams must increase collaboration and information sharing, breaking down silos between departments to address all concerns and opportunities related to inventory. Business leaders need to lead the charge and demonstrate the benefits of the change.
To focus on lean practices and supply chain and inventory analytics, businesses should strongly consider educational offerings from APICS and the Association for Supply Chain Management.
Companies must also engage suppliers and customers, sharing forecasting information, educating them about the new processes and taking considerations like supplier managed and consignment inventory into account.
By putting the necessary tools into place, defining the need for current and future inventory, benchmarking sales to inventory ratios and engaging in meaningful analysis and forecasting around inventory, businesses can continually reduce inventory and make operations more efficient. The drive to zero – carrying as little inventory as possible – requires consistent effort and improvement, but results in increasingly positive results. Management has to take the lead by:
By lowering the overall need for inventory, companies can save warehouse space and defray risks related to obsolescence and carrying costs. Plus, they can improve customer responsiveness and reduce confusion in the process. This ultimately boosts customer satisfaction.
Businesses must take their market position and goals into account, setting inventory levels in line with individual objectives like consistently fast response to orders. But the result of an effective lean supply chain and inventory is always: