The essential manufacturers’ inventory management checklist
For manufacturers, effectively managing your inventory is critical if you want to reduce costs and improve your cash flow. Whether your inventory is in a warehouse, multiple locations, consigned or drop-shipped from a supplier, poor inventory management can have a significant effect on operational efficiency, customer satisfaction and revenue.
This essential inventory management checklist from Sage will help you see how well your processes measure up.
1. How do you report your operating inventory levels? Do you use categories like safety, replenishment and excess or obsolete stock?
Best practice: Identify requirements and report inventory levels against:
– Minimum safety stock needed in case there are supply chain problems
– Replenishment for refreshing deliveries every two weeks
– Overages resulting in excess or obsolete inventory
2. Do you use standardised statistical methods to calculate your safety stock levels?
Or are you using a simple rule of thumb such as “all products made in factory ABC need 15 days of safety stock?”
Best practice: Manufacturers that excel use a standard statistical formula that looks at historical data for individual products.
3. How often do you recalculate safety stock levels to ensure they are up to date?
Safety stock calculations consider both customer’s (or manufacturing’s) consumption rate and the transit time from suppliers, but these are not “set it and forget it” calculations.
Optimal safety stock levels can change due to seasonality, weather events, fluctuations in demand, raw materials availability, and other factors.
Best practice: Best in class operations update their calculations every three to six months to ensure that decisions are based on the most accurate information.
4. Are executives involved in key inventory-related policies?
Decisions about inventory levels are strategically important to the business, not just the supply organisation. Departments need to communicate and align to ensure customer needs are met e.g., if the marketing function are going to promote a particular product range the distribution team also needs to be prepared with additional inventory.
Best practice: Executives should actively participate in inventory management decisions to achieve strategic objectives.
5. Does a cross-functional team determine the optimal frequency for producing or ordering products?
You may be missing key information if solely production planning or sourcing managers make these decisions. By considering factors across the entire organization, cross-functional teams can reduce replenishment stock needs by 50 percent and ensure the ability to fulfil big promotions.
Best practice: Set production and ordering schedules with a cross-functional team.
6. How do you determine the frequency for ordering and inventory production?
Best practice: You should set the frequency for ordering and inventory production to minimise overall cost while accounting for negotiations between the different parties, factoring in events such as upcoming promotions and uncertainties like bad weather.
7. Do you recalculate the optimal production frequency as part of a continuous improvement process?
Once you’ve reduced inventories, you’ll have to put new processes in place to lower them even more over time.
Best practice: Focus on the biggest levers for continually reducing inventory.
8. Do you have visibility into excess and obsolete stock linked to inventory reduction plans?
Often, excess stock has its roots in ineffective sales forecasting, planning or business modelling that insufficiently accounts for product complexity and life cycles.
Best practice: Establish processes to determine why excesses are being created and develop a plan of action to sell them off.
9. Do you perform root-cause analysis on excess and obsolete stock and execute plans to minimise recurrence?
Best practice: Create two task forces with linked action plans. The first identifies the root causes and determines ways to reduce the creation of new excess and obsolete stock. The second partners with Sales to effectively sell off the stock.
10. Do you apply the above practices across all parts of your inventory and manufacturing organisation?
One mistake commonly made is to focus solely on finished goods.
Best practice: Build a comprehensive map to prioritise ways to reduce inventories in all categories including raw materials, works in process, spare parts, and goods with retailers.
Did these inventory management questions reveal ways you could make your business more effective and efficient? In an immensely competitive industry, manufactures that prioritise inventory management and regularly improve processes will stay ahead of their competitors.
An advanced stock management software, like Sage 200, makes the process of managing your inventory a whole lot easier. You get a complete inventory and warehouse management solution to help you optimise stock levels, keep costs down and deliver what your customers want.