This article focuses on looking at results oriented practices that are employed in Inventory Management Lifecycle. For the purpose of this article, when we say ‘Inventory, we refer to products that are usually ‘stored’ for the purpose of production, assembly and/or re-sale.
The topic of Inventory Management so vast where you have a plethora of books dedicated to the subject, this article will stick to the basics and as the heading says to practices that are deemed good in the practical world. The crucial ‘Elements’ you have to get right, first time
Many organisations make the mistake of not ‘planning’ for growth and expansion when devising a numbering system that is crucial for identifying each item uniquely. Item numbers that have proved to be easy to manage as well as identify have the following characteristics:
a) Start with 2 or 3 alphabetic characters that links to the name/description of the item as it helps in ‘searches’ as well as identification.
b) Avoid letters that can be confused with numbers such as O and I
c) Use numerics intelligently – use it for grouping or sub-classifications (101 to 109, or 150 to 159 etc.)
d) Keep it short (as much as is practical)
For the purpose of Inventory ‘lookup’ as well as ‘reports’ it helps to have a short description. Furthermore taking time to consider creating a good Short Description that describes the product clearly also helps in prospective buyers as well as with online searches. In the case of most Retail operations, the items are stored in multiple locations due to logistic conveniences. This could be various areas in one physical location or dispersed geographically. Important factors to consider include:
a) Unique identifiers I.e. do not use identical names for more than one location
b) Place the Name at each location for easy and precise identification
Whilst usually, the Unit of Measure (UoM) is the basis of quantity measurement you purchase or stock a given item, it also refers to the basis on which the item(s) are sold or distributed.
In situations where you purchase in one UoM but sell in another (E.g. purchase in Kilograms and sell in grams) the practice is to stock in the smallest UoM unless the ‘System’ you have allows the Purchase and Stock Holding in Kilograms and sales or ‘issues’ to be done in grams.
Other important considerations include:
a) Standardise on the abbreviations used; E.g. ‘Kg’ and ‘g’, and not ‘Kilos’and ‘g’
b) Stick to one term consistently; E.g. Use either ‘ea’ to denote each instead of some being abbreviated as ‘pc’ to mean pieces which would cause confusion
c) Use a single measure but with a ‘s’ within brackets in the event there are multiples; E.g. Pallet(s)
Stock Policies
This is required in order to ensure that we can carry our business activities with the least disruption in terms of ‘supply’ or ‘availability’ of goods or items for sale. Important policies required for good Inventory Management include Stock Ordering, Minimum and Buffer Stock, Stock Take and Stock Valuation.
Usually, the above policies are dictated by three key variables;
a) The type of stock – I.e. perishable, durable, defined shelf life, etc.
b) The value of stock – I.e. a high value item such as a motor vehicle as opposed to a consumable item such as a spark plug.
c) The lead time for procurement – the time between placing an order and receiving what was ordered in to stock
Situations to be avoided include;
a) Over Stocking – where you block working capital unnecessarily by holding more stocks than is necessary
b) Understocking – When you stock less than the actual demand or stock an incorrect mix such as more Skimmed milk and less Full Cream milk when the actual demand is the other way round.
In order to be able to be in control of all these ‘elements’ it is crucial that you have an Inventory Management solution in place that will allow you to seamlessly manage all the above with minimal manual intervention.
Given the profusion of (digital) Solutions available today, you can get ‘real-time’ information and what’s more, get a snapshot view using dashboards and alerts for speedier decision making. Whilst some Tier 1 ERP solutions offer built in Business Intelligence (BI) modules, it is also possible to get BI software that allows you to connect to multiple databases so that you can get a ‘Helicopter view’ of your operations I.e. Not only your Inventory System but Human Resource Management, Financial Accounting as well as Sales for instance.