The golden rule. Karma. Progress over perfection. These famous examples of tenets are designed to remind us to make the right choices for success as we navigate life’s surprises. But what about the unwelcome surprises that threaten to derail your supply chain inventory management? What are those tenets for success?
To proactively manage inventory, it is essential to forecast inventory levels accurately. This involves a precarious balancing act — anticipated orders, open orders, backorders, planned shipments, planned production and materials bill planning are levers that must all be pulled at once to project supply and demand. Inventory management doesn’t come with an instruction manual, but here are eight inventory management tips to help your business overcome this considerable challenge.
Make What You Can Sell
The forecasting and planning process creates the inputs needed for the production and purchase schedule. With the right planning engine, you can mine forecasted demand trends to create an informed production or purchase plan. But if your forecast evolves and you begin to anticipate lower demand, you should purchase or produce less inventory — simple as that.
Remember, production planning and scheduling is not a one-way street. By comparing historical production data with planned production, you can effectively track whether your production plans are realistic. You might find that you’re often unable to manufacture a particular product at the scheduled time because a certain raw material or component is consistently backlogged or ships late from the supplier, or maybe changeover times between certain products are longer than the allotted time. Monitoring production receipts against the schedule can provide the signals you need to take corrective action before things start to veer off course.
Sell What You Can Make
Ok, so you forecasted demand and created a production plan to meet that demand. It’s a good start, but now you must follow it. That’s the hard part. Of course, a plan is just that. A plan. Sometimes reality doesn’t agree with your demand projections, however meticulously forecasted.
Say a sales team member can close a new opportunity with a new customer. Do you have the capacity to fulfill that request? What delivery date can you hit without disrupting your existing order promises, or which orders can you delay and still hit those promises while accommodating this new order? Following your production plan means identifying and managing orders that weren’t in the plan to provide reliable delivery dates to customers and appropriately prioritize production of surefire sales.
If You Can’t Sell It, Stop Making It
If demand does not materialize, it’s crucial to identify that and warn relevant supply chain parties as early as possible. Teasing out the differences between forecasted demand and actual units shipped is one way to expose inaccurate demand expectations. Leading indicators of demand can also help predict future shifts and identify potential issues before they impact your supply chain. These indicators vary from business to business, but they can include things like customer confidence surveys, new housing starts and even weather patterns.
If You Can’t Stop Making It, Get Out There and Sell It
Keep a close eye on inventory levels, even pulling trends daily if your supply chain planning software is capable. When you sort and classify inventory by age, you identify which products are building up at which locations. This provides direction for sales and provides the basis for corrective action, including discounts and promotions.
Not All Stock Is Created Equal
An important aspect of inventory management is regularly evaluating what products are worth stocking in the first place. When a business has thousands of SKUs, margin analysis might slip down the priority list for some of the portfolio. Costs creep up, profitability erodes, and before long, you’re allocating warehouse space, labor, and capital to items that no longer justify the investment. A disciplined approach to reviewing product performance — not just sales volume, but true margin contribution — helps validate your inventory is working for you, not against you. Strong planning software helps you consider how competitive constraints and cost factors should influence your product mix, and allows you to test scenarios to evaluate how different demand and alternative supply options influence the equation.
Use (and Replenish) Safety Stocks
Safety stocks are only helpful if you use them. If your safety stock always sits collecting dust in the corner of a warehouse or fulfillment center, you’re setting aside so little that you can’t make even small withdrawals without leaving anything at all in the “bank” to fall back on.
The right tools calculate safety stocks and replenishment quantities, then compare this data with demand to manage safety stocks systematically. The concern is whether there’s enough inventory to protect against variability – demand for finished goods, but also supplier variability for raw inputs – and support smooth supply chain operation. Safety stock calculation should be integrated with planning and sufficiently analyzed to allow a planner to dip into reserve inventory with confidence.
Worthless Inventory Does Not Improve With Age
The first and last step to extract value from inventory that has no hope of moving is to get rid of it. There are many reasons why excess inventories might accumulate, and supply chain software can help you analyze and identify aging product.
With your facility purged, it’s time to proactively monitor inventory health so that pockets of slow-moving product do not accumulate again. Metrics to watch include inventory turnover, fill rate, inventory carrying cost and more. Finally, use a supply chain planning software to set up a warning that sounds if inventories are beginning to get out of line.
You Can’t Improve What You Can’t Measure
Inventory management requires a business to take a comprehensive view of the inputs and outputs affecting stock levels. Often, the temptation is to create a better procedure to calculate safety stocks in the hope that this will somehow translate to appropriate inventory levels. A better procedure for calculating safety stocks is nothing more than a better procedure for calculating safety stocks. It is only a small part of managing and extracting value from inventory.
To truly optimize inventory management, start with cold, hard data. The best way to gather the intel you need is with an inventory management solution that not only keeps up with but excels in today’s fast-paced, unpredictable supply chain environments. Arkieva’s inventory manager provides agile tools that help organizations plan, improve operational efficiency and pivot when demand shifts.
For more inventory management tips, review our inventory planning best practices blog.
