Inventory. It’s your best friend and worst enemy.
Done right, it’ll give you what you want when you want it. Done wrong, it’ll waste time and money.
Here are 11 common inventory mistakes you’re making and some tips to help you resolve them…
1. Not Measuring Your Inventory Performance
You see the issues. Performance has been suffering. But you can’t fix it without standards.
Inventory and stores managers often have no idea how well their internal customers’ needs are being met. Without knowing how quickly your inventory moves through the various delivery stages, you won’t be successful at managing your inventory levels.
Are you measuring inventory turns or warehouse efficiency?
Here's what you can do...
Have mandatory tracking of fill rates and inventory turn. Material Managers should know these metrics. Fill rates should be tracked daily, while inventory turn may vary depending on operations. It’s important managers are both tracking and working to improve these rates.
Develop realistic forecast-error measures. How much error can you tolerate without a stockout occurring? Begin estimating this based on a minimum stock level. Do your calculations a determine the quantity you need based on present day consumption patterns. Effective forecast management and inventory planning requires accurate data. So, accurate forecast errors (standard deviation) are a must.
2. Poor Vendor Relationships
Let’s face it. 20% of your supplier base delivers 80% of your results.
Not nurturing your vendor relationships is a huge mistake. You need them. And based on how they perform is a direct result of how your operation is running.
Are your maintenance checks running late? Are you missing replenishment due dates? Are you AOG for everything?
When you yell, scream, and demand things from them, it widens the relational gap. Begin practicing effective communication by talking with them and giving them insight into what your goals are. Let them help you be more successful.
For your top suppliers, begin holding a quarterly performance review meeting. And if you’re in a contract or agreement, you should be holding monthly review meetings with you Dedicated Account Manager.
3. Not Having Qualified Employees
Not having qualified employees managing your inventory, material, and purchasing will leave you with a mess.
Unless you want millions of dollars of unused inventory on your shelves. Then by all means, hire whoever. But, if you live on planet earth, I'm sure that's not the case.
When your team is unqualified you’ll begin seeing overstocking and understocking issues. AOGs will be routine and you’ll be wasting time and money on unnecessary material decisions.
It’s also important to not overlook that buying and planning are two different things. Buyers make purchases while planners help you achieve your material goals. This requires two different skill sets.
Begin hiring the right people, hold inventory managers accountable, separate your buying and planning activities, and train.
4. Having Too Many Part Numbers In Too Many Places
Scrambling to fill C (low-volume) level items causes issues.
Part number proliferation occurs naturally over time and must be minimized. You’ll begin seeing signs of this when filling lower-volume items causes a scramble, or 20 percent of your high usage items no longer account for 80 percent of your requirements.
Not having a stocking policy is also an issue. Create a process-control-focused justification procedure for stocking an item in a specific warehouse, main base, or out-base station.
And as I mentioned earlier, having a buying-vs.-planning mentality is problematic. When buying is emphasized over planning, no one tracks part number levels. An inventory planning mentality would require a reason for stocking an item.
5. Managing All Items The Same Way
It’s just as bad to stock-out of a C item as it is an A item. You either begin having too much C inventory or not enough A inventory because they both require different planning to meet efficiency requirements.
It also doesn't help to have the same inventory goal for all items. This assumes that all items are consumed in the same quantity at the same rate, which of course is never true. Using this goal, you'll spend significant time expediting C items. And for what?
A simple fix is to use an ABC analysis and manage A material differently than B and C material.
You'll also want to use safety time rather than safety stock. Safety time automatically increases safety stock in response to anticipated demand. Safety stock is a stagnant quantity that must be set manually and does not account for changes in demand.
6. Poor Forecasting
Forecasting. A word I'm sure you love.
When you don’t spend time forecasting your inventory needs, you miss out on opportunities. You also put yourself at risk for unnecessary AOGs, overstocking, and back orders.
Your inventory strategy is operating blindly.
By tapping into your consumption history you'll pull out information you can use. If you're a low budget operation, a simple excel file can help, but a more automated ERP system is often necessary.
Once you've established a good forecast and consumption pattern, a vendor consignment or a vendor managed inventory could be your inventory dream.
7. No Automation
Manual processing is so 1990. We live in the 21st century baby. So make your inventory act like it.
"Research shows that even a proficient data entry operator will make one error for every 300 characters he or she enters; and that level of inaccuracy can lead to big headaches if your stock includes hundreds or thousands of products.
Excel and other manual processes don’t operate in real time or allow multiple users to access them at the same time. An automated system, in contrast, enables multiple employees to track items across several locations, all while monitoring orders and shipments for those items."
Let's not leave it to chance. Use an ERP system, find ways you can automate routine tasks and eliminate the mistakes and waste.
8. Inventory Counts Aren’t Planned Regularly
Does an accountant count money? Of course!
And you should make it habit to routinely count your inventory.
Your inventory team can check inventory levels one section per day. It's not hard. Give them a goal and measure it.
Doing it this way you won't have to shut down the warehouse for days. It just makes sense.
9. Inefficient Systems Inside Stores or Warehouse
Trade Gecko brings up a good point. "It’s not uncommon for warehouse managers to fail in finding more efficient ways to handle business. Simply rearranging goods so they’re easily taken out for shipment can save you thousands of dollars. Often times, employees take too much time going through the facility, looking for an item. Always remember that wasted time is money lost."
When you create efficient systems inside your stores and warehouse team, your teams will be much more productive.
A good example of this is using pre-draw kits for routine maintenance checks, storing high usage expendables close to the technicians, and storing no-go MEL rotables in an easy, quick to access warehouse space.
10. Poor Internal Communication
Poor communication is pure evil.
When managers and departments operate in silos, it creates a terrible environment for communication.
An example of this is when those responsible for inventory replenishment have separate forecasts from engineering and maintenance.
Each department must operate as one unit for proper inventory planning.
11. Never Trying New Things With Your Material Partners
The worst inventory sin of all is not adapting and trying new things. If you've been doing the same thing for 30 years you're missing out on some huge efficiency gains.
Look at different strategies to reduce your inventory burden while increasing your reliability.
Don't get stuck in one way of thinking. Be open. Try new things.
The moral of the inventory story is. Be efficient. Stop losing money. And have fun!
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