Inventory management is a science primarily about specifying the shape and percentage of stocked goods. It is required within a distribution facility to ensure that a distributor has:
- What the customer wants
- When they want it,
- At a price that they are willing to pay.
- While maintaining a vigilant eye on the entire Buy, Store, Sell, Pick, Ship, Bill, and replenishment cycle on every item in your inventory.
The scope of inventory management concerns the fine lines between:
- Replenishment lead time
- Carrying costs of inventory
- Inventory forecasting
- Inventory valuation
- Inventory visibility
- Physical inventory
- Available physical space for inventory
- Pricing Inventory
- Sales of inventory
- Replenishment, including what is currently on order from customers and to vendors
- Balancing these requirements leads to optimal inventory levels.
Inventory purchasing and replenishment is a never ending cycle that requires that inventory and sales work together.
- In today’s marketplace a wholesaler has to be constantly vigilant of their inventory levels.
- The wholesaler needs to use technology to stay on top of market conditions that are changing very rapidly.
- Inventory management involves a wholesaler seeking to acquire and maintain a proper merchandise assortment while they keep ordering, shipping, handling, and related costs in check.
To make all of the above happen, the wholesaler needs to involve technology with systems and processes that identify:
- Inventory requirements
- Set targets for keeping inventories that are fresh
- Provide replenishment techniques
They need up to minute reports of actual and projected inventory status so they can handle all functions related to the Buy, Store, Sell, Pick, Ship, Bill, and Replenishment Cycle.
This would include the monitoring of products:
- Moving into and out of warehouse
- Branch locations and the reconciling of the inventory balances.
It also may include:
- An ABC analysis
- A method of inventory counting that supports periodic inventory level checks
Management of the inventory:
The primary objective of managing inventory lets the wholesaler determine and control stock levels across the entire warehouse/warehouses.
- The purpose of inventory management is to be able balance the need for product availability against the need to minimize stock holding and handling costs.
- Inventory management is primarily about specifying the amount and placement of stocked goods. Inventory management is required in a supply network to protect the regular and planned course of replenishment.
- The goal of on hand inventory is to protect against the possibility of running out of materials or goods.
There are three basic concerns in managing inventory:
1. Time – The time lags that are present in the supply chain,
- Delivery Lead Time – Time from the vendor to your location
- Lead time to deliver Product to the customer
Both of these Lead times are will need technology to maintain
- Adequate Stock On Hand
Which depends on the amount of
- Shelf Stock
- and Safety Stock for every item
When you are using modern computer software it will adjust the lead time based on seasonality and customer’s demand for a product.
2. Uncertainty –
On hand Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods.
3. Economies of scale –
- The Ideal condition of “one unit at a time at a place where a user needs it, when he needs it” principle incur lots of costs in terms of logistics. So bulk buying, movement and storing brings into play economies of scale when it comes to ordering your inventory.
Replenishment Philosophies vary from distributor to distributor.
- If you are not using your current software to recommend purchases, then you are depending on a manual philosophy that will cause you to have too much of the wrong inventory
Replacing what has been sold is a short cut to having too much inventory.
- When you are using a system that is not keeping up with inventory, then you are buying based on what has been sold when you replenish your inventory.
- Depending on the item’s buy and sell cycle, you might be replacing an item that was sold at the end of its sales cycle. If you replace that item with your next Purchase Order, then you will have inventory that is not moving.
- That inventory will not move until that product’s cycle returns, if it ever does. Setting inventory carries a cost of 20% plus prime, ANNUALLY.
These are just points to ponder as you look to replace your current inventory system with software that can handle the entire Buy, Store, Sell, Pick, Ship, Bill, and Replenishment Cycle.
Mel Carney Professional Data Systems, Inc. 800-711-7374