Seven capital questions on efficient inventory management

Efficient inventory management ensures that you easily sell and deliver goods. You do not use unnecessary funds and your working capital stays healthy. It is a good thing to keep your stock low, however better avoid a shortage. Balance is the key word.

1.     Is your inventory too much or too little?

Is your stock optimally aligned with the real needs of the market? Can you reduce inventory without endangering production? Does a just-in-time approach offer the solution? How much you have to keep in inventory depends on the extent to which supply and demand are in balance. The more aligned inventory is with the market’s demand, the smaller the inventory has to be. It generally holds that the greater amount of inventory, the longer it takes before it yields cash. Reduce the cycle times.

2.     Do you have an overview of slow-selling products?

Do you have a good view on what sells quickly and what slowly? Do you adapt your inventory strategy accordingly? A good inventory management system keeps you accurately informed and enables you to respond appropriately.

3.     Are you trapped in the logic of logistics?

A logical logistical choice is to round off numbers for orders upwards to assure full boxes, full pallets, and full freights. That is a valuable reasoning. However, the result is that there is more in stock than strictly necessary. Regularly weigh the cost price of this ‘logistical efficiency arguments’ against the cost price of the inventory.

4.     Does the chain turn smoothly?

Uncertainties in production and logistical knowledge lead to a build-up of security inventories. Often nodal points in the chain are the cause. You can avoid this with better calculation models, better communication flows, more reliable business processes…

5.     A good barometer?

How accurately can you forecast future demand? When capacity can´t keep up with peak periods in demand, it makes sense to build up a strategic anticipation stock. At the same time, study how you can smooth out the fluctuations in demand, the peaks and the valleys.

Do you expect increases in raw material prices? Investing in a speculative inventory can be a smart decision. When weighing the pros and cons, consider all elements to arrive at a comprehensive cost-benefit analysis.

6.     Do you have old stocks?

Are the warehouses sheltering old stocks that might no longer be marketable? Cut the needless logistical storage expense and eliminate aged inventory.

7.     Are you too good for your customer?

Products in stock guarantee fast delivery, which is good for the customer relationship. Nevertheless, for certain product categories, it´s worthwhile to evaluate whether this level of service really outweighs the expense.

Keep your working capital under control

Efficient inventory management is just one way to keep your working capital healthy. Effective supplier management, tight customer relations management and intelligent credit management also ensure that your need for working capital remains under control (read: stays as low as possible).

Download the white paper on working capital and find out all about it.