The three questions that will improve your inventory management.

The three questions that will improve your inventory management
Imperia Article
Published: 21/10/2020

Stock management is essential for any company. Excess inventory entails unnecessary costs, and inventory shortages result in lost sales. Procurements require a balanced view and proper management to improve working capital and liquidity.

If you're unsure about how to manage your inventory, here are some questions that will help you improve your stock policy.

1. How much inventory do we have? Why do we have it?

Companies must have a clear understanding of how the last link in their supply chain works: the sale of the finished product. Subsequently, they should adapt each process upstream, including purchasing planning and raw material storage.

Let's look at some examples from different sectors where demand forecasting is necessary to serve their customers:

  • Consumer products: Safety stock plays a crucial role in avoiding stockouts, but obsolescence must also be taken into account as it could lead to significant losses.
  • Industrial products: Working with a large number of units but few references, batch size is key, as well as potential economies of scale in production.
  • Services: An optimal solution should be sought to group customers in the same batch, achieving operational efficiencies. For example, in home delivery companies, orders are consolidated to reduce travel frequency, thus reducing operational costs.

The safety stock will depend on the level of resources reserved for extraordinary situations. In the previous example, vehicles that the company decides to keep in reserve for transportation incidents.

2. Is the stock management policy based on unified criteria? Is it the right policy for the company?

Efforts should be made to eliminate common simplifications, such as "We have inventory for 20 days of production." To do this, a good demand planning process should be carried out, leading to the procurement of the necessary raw materials and the ability to manage them in a warehouse where the exact quantity of product is known, the expected quantity of product to be sold, and the frequency of incoming and outgoing products.

3. Who decides the stock policy in the company and how?

The management and procurement of raw materials should involve both the finance department and the operations department, without forgetting the sales department, which is often excluded from making decisions of this nature, despite its crucial role.

The operations department should set guidelines on purchase quantities and timing, while the finance department should study the feasibility of acquiring the products requested by operations. However, for example, for the demand planner (a member of the operations department), it is essential to be aware of all planned sales promotions to ensure their analysis aligns with reality.

Therefore, since the sales department is the one truly immersed in the market and knows all promotions and marketing activities, it should keep the operations department informed to consider the additional procurement needs and inform the finance department to improve working capital and liquidity through proper inventory management.

If you need to improve your stock management, contact us, and we will help you make sales forecasts that will enable you to achieve excellence throughout your supply chain, including stock inventory levels.