Inventory Management: Manage Inventories to Manage Cash Flow

Today's topic is Inventory management

First we can understand what is inventory and types of inventory.
What is Inventory &Its Type
- Stock of items kept to meet future demand
- Purpose of inventory management

• What to order
• How many units to order
• When to order

Reasons to hold the inventory-

• Meet variation in Production Demand
• Cater to Cyclical and Seasonal Demand
• Economies of Scale in Procurement
• Take advantage of Price Increase and Quantity Discounts
• Reduce Transit Cost and Transit Times
• Long Lead and High demand items need to be held in Inventory
• 
  

Reasons not to hold the inventory-

• Risk of inventory becoming obsolete
• Risk of item not selling
• Higher storage/space costs
• Risk of natural disasters
• Higher insurance premiums

So how can you keep the perfect inventory balance?

While it is true that there are different ways to get around many of the cons on the list, it is important to keep in mind these very real issues that present themselves when dealing with keeping excess inventory on hand.
In many cases, you will probably find that keeping additional inventory in stock is a good thing. You have probably found that having enough of a hot-selling product is a constant problem. Rather than come up short when a customer is eager to buy, it is wise to keep a few more in the back, in reserve so that your shelves are never empty (which doesn’t look good for any retailer).
One way to help ensure that you always have a good balance of inventory is to use software specifically designed to manage item based businesses. For example, in Flow Inventory will alert you when your stock hits a certain point and allows you to create a purchase order with a few clicks.

Techniques of Inventory Control

There are a number of different techniques employed by wholesale distributors to ensure their inventory control is maximizing efficiency and profitability. Below are six key techniques of inventory control for wholesalers and distributors of durable goods:

1) Establishing Annual Stocking Policies

Management must decide the maximum and minimum level of stocks and supplies that need to be kept in the warehouse or across the network of warehouse locations. Management must also set optimized re-order levels, safety stock levels (below which supply must not be allowed to fall) and an average inventory level to ensure costs are contained.

2) Preparation of Inventory Budgets

Many organizations have an annual inventory budget and they are usually prepared well in advance before inventory is procured. Budgets should include the total cost of ownership to keep inventory on hand during that year’s account period. This includes materials cost, fixed operational costs, carrying costs, logistics costs, redistribution costs and additional miscellaneous costs that contribute to the total costs of ownership.

3) Maintaining A Perpetual Inventory System

Also known as “the automatic inventory system”, this method is designed to keep a constant track of the quantity and value of each stocked item. Many wholesale distributors leverage a combination of an Enterprises resource planning in conjunction with an Inventory Optimization solution, such as easy Stock, to optimize inventory balances. Most ERP and WMS technologies struggle to keep costs low and service rates high, which is why optimization software can be so valuable to operations processes

4) ABC Analysis and ABC Classification

The fastest moving products in your inventory should be located closest to the shipping, staging, and receiving area in the lower-right of the diagram below. As the demand for each product decreases over time, products should be migrated backwards to free up space for items with higher inventory turnover  or for new product introductions that have high demand. Since the majority of your picking activity is performed in a rather small area, your warehouse layout should be optimized to reduce time spent looking for product in the back of the warehouse.

5) Kanban

The word Kanban means card;
It is a card(oradocument) that representsan Order of material from one Customer to one Supplier;
The basic information printed on the Kanban is:

• Material identification(and code).
• Customer identification.
• Supplier identification.
• Quantity to be supplied.

Order to Kanban:
2 types of orders can be transformed in Kanban:

• Customer orders
• Replenishment orders

Kanban help to meet the Pull system. also help to maintain the inventory.

Case Study-

In Tata yazaki big problem was high inventory also safety stock for 10 days so space shortage was problem.

Action-
management has decided to implement Kanban system from raw material store to Finish goods products.

difficulty-Starting very much problem in implementation, just like missing card missing, change management not involve in kanban so wrong wire length cutting, people not ready to change easily

Step by step guide

• Again brain storming meeting from management
• define problem phase
• Current condition
• Solution-Implement kanban
• targets & Goal
• demonstration in one line
• Implement to one line
• Again modify the project
• finally successfully got the result

Advantages-

38% Inventory reduction in yazaki  plant store

safety stock Inventory reduce from 15 days to 2 days

20 % Space save at shop floor

Thanks for reading, give your comments if you need more information or query.