Businesses Need Supply Chain Professionals for Inventory Management

Inventory management is an elaborate process that involves tracking, reporting, and organizing a business’ inventory throughout its supply chain. For some businesses such as manufacturers, it includes managing incoming raw materials from suppliers, work-in-progress goods moving along the value-adding process, and finished goods for sale to customers. For other businesses such as retailers, inventory management involves organizing ready-to-sell stock as it comes in from suppliers and goes out to customers.

Done well, inventory management minimizes a business’ inventory costs while optimizing its operations. Some of the costs associated with inventory include warehouse rent, utilities, capital expenses for storage infrastructure (shelves and boxes), and employees’ salaries. There are also insurance costs and handling costs such as paperwork. Good inventory management minimizes these costs while optimizing operations. It enables the latter by ensuring the business always has the inventory it needs, in the right amount, and at the right time. This smooths internal operations and ensures customers have access to the products they need, when they need them. It also improves cash flow as the business balances between supply costs and incoming sales receipts.

There are many types of inventory management strategies. Examples are Six Sigma, par-level inventory systems, FIFO (first in, first out), and LIFO (last in, first out). There is no one-size-fits-all strategy for businesses. In fact, many blend a number of strategies to achieve an ideal inventory management process.

Business owners who want to set up their own inventory management systems should work with supply chain professionals. These individuals possess the knowledge and experience to help business owners come up with a system that properly aligns with their unique business needs. They help business owners answer critical questions that will guide them toward realizing a suitable inventory management system. For example, at the internal business level, they will ask the business owner questions such as what are the primary and secondary items the business needs? Are they perishable? Where will the business source these items? Where will it store them and how will it organize them? Further, how will the business track its inventory and inventory holding costs?

Sales side factors will also come into play. For example, will the business be selling its products online, through a store front, or both? How will it manage its inventory levels across these channels? How will it forecast customer demand? Answering these questions will provide a firm understanding of the business’ inventory management needs, allowing the supply chain professional to prescribe an appropriate strategy.

Even after developing and implementing an inventory management system, a business will still need to monitor its success and make changes where the system needs improving. Examples of issues that point to a failure in a business’ inventory management system include excess inventory, increased inventory holding costs, inventory shortages (especially for fast-selling items), inaccurate records of inventory, and lost inventory. A business that experiences any of these too often should re-examine its inventory management system for efficiency, making changes where necessary.

External factors may also necessitate modifications to a business’ inventory management system. For example, a competitive business environment where a business’ competitors reduce their prices or launch new versions of products may require a business to re-evaluate its supply contracts to realize cost savings or upgrade its suite of products. Changing consumer preferences may also prompt modifications in the inventory management system.

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