Written by Sebastian Thomas, director - projects, Zafco
According to industry reports, inventory costs are definitely on the rise and can either be attributed to an increase in demand, or as a result of mismanagement within the supply chain. While an efficient supply chain can put a company on the right path to growth, an ill-managed system can result in extinction for the company. As one of the largest tyre distribution companies in the world, it is essential we ensure that the supply chain is running flawlessly which means managing every stage efficiently, ranging from demand forecasting to procurement, shipping, warehousing, inventory management and transportation. Over the years, our firm has successfully initiated and implemented procedures, technology and practices to ensure optimum inventory management in order to exceed customer expectations.
Building a healthy supply chain may sound difficult, but it is something every firm can achieve provided they consider the following key points. Firstly, do you have the right storage for your operation? The warehouse is the keeper of the stock and to say that inventory represents the single largest asset of an organisation would still be a complete understatement. As the very lifeline of a manufacturing or distributing unit, efficient inventory control is a planned approach to determining what to order, when to order, how much to order and how much to stock so that costs associated with buying and storing are optimal and do not interrupt production and sales. When selecting a storage facility, it is equally important to account for future expansion plans. Make sure that your storage facility has the capacity to accommodate an expanding inventory and future sales forecast.
Secondly, are you utilising your warehouse ‘capacity’ appropriately? Irrespective of the size of operations − a large or small warehouse − capacity issues often equate to inventory issues. It is essential to utilise the warehouse storage capacity optimally. For example, if your warehouse is over-crowded, the basic rules for managing the warehouse are being overlooked. By opting to store excess inventory, products are exposed to the risk of getting damaged, lost or are not accounted for in the inventory management system and are eventually written off the company’s balance sheet.
Thirdly, ‘damaged’ inventory is dead inventory. If you enter any warehouse you will notice that every product passes through multiple handlers and is susceptible to damage each time it is moved. Depending on the nature of the product a distributor may have an option to recover his loss by selling marginally damaged goods on discounted rates. But for products like tyres and pharmaceuticals for example, a discount sale is clearly not an option. So if you notice higher damaged inventory, you should consider additional employee training and also conducting a root-cause analysis to get to the source of the problem.
Fourthly, are you stocking the right inventory mix? We have already determined that inventory mismanagement can impact stock holding and therefore liquidity of the organisation. An important aspect to determine is the ‘health’ of the inventory mix which can include; active stock, safety stock, in-transit stock, speculative stock, seasonal build stock, obsolete and dead stock. An effective scientific inventory control system can help identify the right mix for your operations and therefore improve the fiscal and physical efficiency for any manufacturing or distribution unit.
Fifthly, how long does it take you to identify a product? It is easy to think that you have everything covered if you have the right space and the right quantity. But a greater problem is when inventory arrives with incorrect labels, barcodes, product SKU’s or packaging. If the consignment is not verified and tagged correctly, it can result in immediate inventory discrepancy besides making product identification a definite issue.
Sixthly, a successful operation doesn’t end at hiring the best talent in the industry. A large number of warehouse inventory issues related to inventory accuracy, damage and product identification are a result of absent or improperly trained staff. Proper training is key to increasing a warehouse’s efficiency and productivity and decreases inventory management issues.
Finally, get tomorrow’s technology working for you today. Technology is an equally important investment to help an organisation maximise profits. Distributors and manufacturers today have a range of options to choose from depending on what best suits the operation, ranging from manual entry to barcodes and radio-frequency identification (RFID) that can be integrated with advanced inventory control software like SAP. Just like the ‘domino effect’, it is absolutely vital for an organisation to employ the key elements – people, technology, place and practices in the right mix – in order to ensure that the supply chain system is working efficiently and maximising the profitability of the entire operation.