26. May. 2014

Inventory management: time to revisit the rules

by KII

Inventory management is a very simple concept – don’t have too much stock and don’t have too little. Since there can be substantial costs involved in straying above and below the optimal range, careful inventory management can make a huge difference in the profitability of a business. Although the concept is simple, the process of getting the right balance can be quite a complex and time consuming task without the right technology.

Excess inventory generally weakens business competitiveness by increasing operating costs & decreasing the margins. It can also lead to quality problems such as degradation and potential obsolescence. Therefore it is crucial to have the right balance of inventory and managers must decide on an inventory level that balances the risk of running out of products with storage costs and the other negative aspects of holding too much inventory.

Quick primer: 10 golden rules of storage

  1. Air free storage
  2. FIFO
  3. Bend free
  4. Count free
  5. Search free
  6. Heavy material at ground
  7. Fast consumables near entrance
  8. Climb free
  9. Adequate lightening
  10. Adequate ventilation

Where to keep?

It is very important for any organization to move from FAT to LEAN. Therefore having visibility and control over inventory requires both a tactical and strategic Lean approach. We can save time by not moving product to storage, and we can cut costs by not having to pay for a storage facility, and by increasing inventory turnover. There are few fundamental questions that must be answered, in order to manage the inventory of any physical item –

  • When to order?
  • How much to order?
  • Why gain better inventory control?
  • Know what you have?
  • How to understand warning signals?
  • How to practice change?
  • How to improve inbound processes?
  • How to deal with replenishment?

Focus on improving on picking & returns

While you focus on improvement process, it’s vital to keep in mind that the essential factors that helps improving inventory management are having appropriate policies and procedures; top management commitment; motivating and training staff; developing & having effective cross functional teams; realizing accurate data; maintaining good WMS analytics capabilities; and putting in a lot of hard work.

The ultimate goal of any organization should be to achieve inventory optimization to minimize overall cash investment without increasing the risk. All the factors have to be reviewed on a regular basis as it influences the actual inventory investment need. Therefore overall inventory levels should be adjusted & managed according to the changing demands and with the aim getting rid of obsolete or excess inventory.

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