Is Inventory Eroding Your Profits?

This is particularly relevant when business slows down, cashflow becomes tight, and every dollar counts.

Here are signs that indicate opportunity for improvement:

  • There is never enough of the right stock, and too much of the wrong stock.
  • Annual stock write off provisions keep increasing.
  • Inadequate control of inventory and related processes.
  • Poor stock accuracy – there’s no stock even though the computer says we have some.
  • Struggling to keep up with demand for rapid business growth.

Profit & Cashflow Impact

The effect of these problems can be debilitating for the business and an ongoing drain on working capital and profits. Excess stock ties up cash, and inventory write-offs from obsolete stock impact directly on the bottom line. If not identified and dealt with quickly, this year’s excess stock becomes next year’s write offs in an ever compounding problem. Conversely, items that regularly stock out can cause lost sales or unhappy customers, impacting the top line sales growth if not adequately addressed.

Morale and Customer Service

The pressures put on operations and customer service staff trying to satisfy customers whilst dealing with these sorts of issues eventually demoralises the team, erodes the culture of success, and leads to attrition of the best achievers if they feel they can’t succeed. At the same time, cost pressures increase with the CFO lamenting excessive warehousing costs and supply chain expenses due to expediting shortages.

The Best Fix

The solution to this requires people, processes, and systems to be optimised.

  • Processes and methods need to be implemented using industry best practice.
  • Team members need knowledge (that there is a better way) and skills, combined with management and a supportive structure with clear roles and responsibilities.
  • Systems to enable the use of technology for control, visibility, and decision making.

Improvements are monitored with metrics including inventory segmentation, SLOBs (slow moving & obsolete stock), DIFOT (delivered in full on time), stock turns, and inventory accuracy.

The inventory strategy needs to include:

  • Process improvement – More efficient (faster) and effective (better)
  • Assess and improve systems – Integrated with process flow
  • Automated reporting and analysis – Easily accessible

How to Make a Quick Start

The question is, can your current team facilitate inventory management change of this nature? If the answer is NO, then contact us.