10 Ways To Improve Supply Chain Inventory Management

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Inventory management is something that is often overlooked in the ‘grand scheme’ of things, but in reality, if you improve your supply chain inventory management systems, then you can eliminate waste, reduce your inventory storage costs and effectively save a significant amount of money, so it is certainly worth looking at ways in which you can improve your inventory management.

1. The most important thing that you can do when it comes to improving your supply chain inventory management systems is to continuously look at how you are doing, what you can do to improve and any ways in which you can make the ways in which you manage your inventory or stock more effective. This is really important because it will ensure that you are always striving to make the systems that you use better, rather than looking at specific areas of inventory management, bringing in ‘improvements’ and then assuming everything is fine. You cannot assume this; you should continuously check to see what is working well and where any areas of weakness are. Remember data analysis is key – tools like ABC analysis can really help you in understanding your inventory.
2. Reduce the storage costs for inventory: By holding only the stock you need, either for Just in Time manufacturing or with regard to optimum stock levels you will reduce the overall storage costs for stock. They will need far less storage space and you may be able to reduce the amount of warehouses that you need. In addition you will not have to secure as much stock, which has a knock on cost benefit.
3. If JIT manufacturing is not an option, then make sure that you can base the amount of ‘safety stock’ that you hold by using demand forecasting. If you use forecasting models to help you analyse and then predict likely demand, you will be able to avoid overstocking or the dreaded ‘stock outs’. The software that you use to forecast demand will also help you to balance the risks associated with either too much or too little stock at any given time.
4. Automate wherever possible. The more a system can be automated the less it generally costs to run in the longer term, so wherever you can make sure that you can automate the facilities that you have.
5. Use technology to help your improve inventory management, whether that is through tracking items or by making sure that technology is responsible for replenishing stocks, you really need technology to help you take the staff time out of inventory management.
6. Ensure that there is joined up thinking in your organisation with the procurement team working closely with the inventory management section so that each know what the other needs. If these two teams work in isolation, then there will be little in the way of improvements over the longer term.
7. Consider implementing joint procurement systems with common suppliers, so that you can ensure that your costs per item are reduced.
8. Extend the time that is required before you have to pay. This will ensure that the stock that you are holding is not paid for until the last minute, which will save money over a long period.
9. Consider using vendor managed inventory systems, where the vendor actually manages your stock for you. This will save you all the paperwork associated with having to place orders, ensure that they are delivered and so on.
10. Never assume that you have made all the improvements that you possibly can. There are always new automated systems or new technological aids coming on the market all the time that will help bring about improvements to your inventory management; so strive for continuous improvements!

Managing the supply chain is not an easy process. There are all kinds of inherent risks to ensuring that the supply chain flows and is not interrupted. So keeping a L:ean supply chain, where stock levels are kept very low, can often be seen as a real challenge.

But there is a way of determining safety stock levels with relative ease and that is by using service levels to make this determination! All you need to do is to quantify what levels of service you want to offer your customers and then ensure, through analysis, that you retain enough stock to achieve this level of service.

Safety Stock

Safety stock can sometimes be referred to as ‘buffer’ stock, simply because it is the extra stock that will be kept to act as a buffer against a stock out occurring. If a company retains an extra level of stock then it can meet changes in demand without too many problems. It is in a sense an insurance policy that offers protection from a customer suddenly increasing demand and the supplier having no stock to supply.

The level of safety stock is difficult to accurately predict. The whole thinking behind Lean is to ensure that stock levels are kept low and that there is no waste incurred through keeping too much stock. But if the supplier is meeting the needs of a customer who has a new product that theya re manufacturing, how can anyone know how much stock to keep as safety stock? Well that is where service levels can come into play.

Service Levels

A service level is a tool that is used within stock management systems and supply chain management to assess the performance of the supply chain and stock systems. The service level is used to express the chances of certain levels of safety stock not leading to a stock-out. So when the safety stock is kept quite high, then the chances of a stock-out will be low. Conversely when there is a very low level of safety stock, then the risk of the stock out is high.

So the company needs to decide what is an acceptable service level; it would be foolhardy to set a service level of 100%, since this is too high, but within certain industries, the service level is set at 95%, allowing the opportunity for a stock out, but keeping the risk of this low.

Sometimes setting the customer service level can be an uncomfortable experience, similar to being between a rock and a very hard place. If you do set the customer service level at 95% you are effectively saying that for 5% of the time, the customer’s needs may not be met.

Conversely if you strive for 100% then you will find that there is stock sitting in a warehouse, needing to be managed, controlled, kept secure etc and sometimes it is never used at all; so you lose out as the stock deteriorates, but the customer is kept very happy!

Fixed Time Safety Stock

Historically most businesses have used methods relating to fixed time schedules to ascertain how much safety stock they should keep. So they may retain 4 weeks of safety stock at any given point. When the stock levels get below 4 weeks, stock is replenished. However, this approach is not related in any way to service levels and as a result cannot be as flexible as using service levels to determine safety stock. In addition there is a real danger of stockpiling stock using this method, which in itself can increase costs.

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