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Common Inventory System Problems & Solution Essay

Symptoms:

Preoccupation with the forecast within the execution time frame. Typically, companies begin altering their forecast management processes when addressing supply chain performance. But this is unwise without understanding the nature of your demand and the root causes of forecast errors. When forecast accuracy is overemphasized, fill rates and inventory turns don’t improve, even when forecast accuracy does. No measure of customer service or inventory turns. Customers must be satisfied on an ongoing basis for a company to achieve long-term sustainability.

Yet, inventory managers often have no idea how well customers’ needs are being met. Similarly, without knowing how quickly inventory moves through the value-creation-and-delivery system, a company won’t be able to manage inventory levels. Daily planning is based on a back order report. This is an entirely reactive model. Today’s fast-paced marketplace requires proactive inventory planning to meet current demand. Customers will switch to a competitor if their needs are consistently unmet in the time frame they dictate.

Solutions:

Mandatory tracking of fill rate and inventory turns for all product lines. Product managers should know these measures at all times. Fill rate should be measured daily, while inventory-turn measures will vary based on sales and production cycles. The important thing is that managers are both tracking and working to improve these rates. Develop realistic forecast-error measures. Developing realistic measures for how much forecast error you can tolerate without a SKU stock-out is essential. Typically, companies estimate plus or minus 10 for this measure, which equals about two days worth of inventory-a miniscule amount considering that companies often have weeks or months worth of inventory. Effective forecast management and inventory planning require accurate data, so accurate forecast error measures are a must.

Mistake No. 2: Having unqualified employees manage inventory Symptoms:

A sentiment that “our business is different because (fill in the blank).” Every company has inventory planning challenges, such as variable demand. No business is so different that it would not benefit from strategic inventory management. Decentralized inventory management. If warehouse managers, office clerks, and other employees without specific inventory-management training are making inventory-management decisions, then it is certain that wasteful inventory is piling up throughout the system.

Usually, this model reflects a company with no clear goals or strategy for inventory planning. Lack of formal training program or professional peer interaction. Inventory management is a professional skill that requires upfront and ongoing education. Emphasizing “buying” over planning. Buyers make purchases, but planners make strategic decisions to meet goals. Thinking of inventory planning from a purely “buying” point of view means opportunities for improvement and financial benefits will be overlooked—daily. Solutions:

Recognize that inventory management requires professional job skills, and hire and train accordingly. Just as a company with hundreds of thousands of free dollars on its balance sheet would hire professional investment advisers, a company with hundreds of thousands of dollars in inventory should have professional inventory managers. Assign accountability for inventory management. Often, companies can’t answer the question, “Who is in charge of making sure inventory levels support strategic goals?” If no one is, then these inventory planning goals will never be met.

TOP 5 SOLUTIONS:

1. Use reorder points on inventory items to keep purchasing streamlined and inventory manageable. Reorder points (otherwise known as min. and max. levels) are the best method for making sure you have the right amount of inventory in your warehouse at all times. If you have too little inventory you could lose out on sales, but if you have too much your cash is tied up in inventory that will not be sold. One of the biggest problems many companies have is managing their cash. A quick way to solve that from an inventory standpoint is by making sure you have set the appropriate reorder points for your business. 2. Spend money on specialized training for mission-critical software. Companies with a lot of inventory spend thousands of dollars on software they need in order to manage and track their items as they move all over the world. This software manages millions of dollars’ worth of assets. After spending so much money on software, some companies don’t want to spend a few thousand dollars extra to buy the specialized training they need to implement the software.

This is a big mistake because this software won’t do you any good if you don’t spend a little bit more to learn how to use it. If you try to learn your software on your own you may suffer for months before you learn the basics of how it works. 3. Rearrange the warehouse to set up for picking efficiencies. Sometimes trainers see mistakes that are so obvious you would think they’d be corrected immediately, but warehouse managers may be too distracted to notice them. We often see 100,000-square-foot warehouses that are organized inefficiently. These companies could save themselves large sums of money by making a few changes to where they place their inventory. The items that you sell the most or send out the most should be right next to the shipping dock. This keeps your employees from having to walk all the way across the warehouse to pick them up every time you are going to send them out. As companies grow, sometimes they just randomly put things where there is space.

This works for a little while, but as you grow you need to think about efficiency because the minutes that your employees spend driving around the forklift cost you money. 4. Take time to get to know your technology so that you can use all the functionality. Rarely will a company use all of the functionality their software provides. Most of the time there is more that the software can do for you that you haven’t explored. Software companies always hear from their customers about which features they want added to the software when a lot of the time the features are already there. The more features that you use in the software the more effective you can be in managing your inventory. You should either assign someone within the company to learn the software functionality or pay someone to come in and teach it to you.

5. Stop doing yearly physical inventories and move to a more regular, smaller cycle counting and reconciling routine. Businesses used to shut down for a day to a week each year to go into their warehouse and physically count everything to make sure that it matched the information in their software. This practice is mostly outdated because of the amount of time and money it takes. Doing these checks in smaller, more regular cycles keeps a company from having to shut down. We recommend picking one section each day to check your product levels against the information from your inventory software.


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