Is There A Simple Trick To Managing Inventory?
If you have too much, you are over ordering. If you have too little, you are not ordering enough. In other words, "you're damned if you do and damned if you don't".
There is very little room for a planner to make mistakes. A real simple rule of thumb to help planners is to break their items into one of the three inventory states: overstocked, under stocked, or balanced. Planners should try to maintain 60-80% of their inventory in the balanced state, while the balance should contribute toward the under stocked and overstocked state.
Maintaining and reporting inventory in these states is a great first step to creating an actionable, drill-down dashboard. Workflow and focus should be on those items contributing most to the overstock and under stock states, thereby improving your productivity and balancing the inventory for the items you manage.
Unfortunately for planners, management does not typically look and track inventory at the level a planner would or is responsible for. Executives typically like a corporate-wide top-down view of the financials, including inventory investment. From this top-down perspective, inventory does not necessarily fall into the three aforementioned states. And, by the law of large numbers the overstocked items end up negating the under stocked items so the investment may look more balanced from a top-down perspective then it really is. The true breakdown of inventory by state is lost, along with your true performance. At the very minimum, calling attention to the inventory investment by state is a great way to demonstrate your performance, even when aggregated. It is also a better way to illustrate inventory trends.
We would love to hear your feedback.
Contact us and let us know if there is anything you would like us to write about as we are always looking for exciting new topics for our readers.