Is your inventory balanced?
Unfortunately most companies do not have a balanced inventory. They either have too much of a SKU or not enough. This imbalance can cause customer complaints, lost sales, and higher operating costs.
Consider The Curious Case of the Computer Cables. Last year, a buyer at a large multi-national distributor decided to make a large purchase of a new type of computer cable, compatible with a new technology. They initially planned to sell 100,000 units in 6 months. After a couple of weeks, the sales trend showed that they would sell about 600,000 units of the cables, so they committed to purchase all those units from the off-shore supplier. A few weeks later, the sales trend had rapidly decreased, and the forecast now showed that they would actually sell only 200,000. They were stuck with 400,000 computer cables that they couldn’t sell. This is a simplified example of inventory overbuy and obsolescence that companies face regularly. If mismanaged, the inventory costs can not only make a dent in profits but critically jeopardize a company’s existence.
Of course, the opposite can also be true. You can end up under-estimating the demand for a product, and customers are then unable to get them. This results in lost sales and customer complaints, both at the distributor and the retail customer level.
Finding the balance between too much and too little is the name of the game. But how do you accomplish this kind of balance? The answer lies in building the right “balanced inventory” capability for the company. This capability includes the right business practices enabled by the appropriate technology and a skilled team. Working with more than 60 major companies for the past 20 years, we understand the nuances of balanced inventory challenges. We have identified the following 10 Principles of balanced inventory that need to be adopted diligently by any company aspiring to utilize its inventory effectively.
The 10 Principles are:
- Get the Left & Right Hand Working Together
- Clearly Define Customer Service
- Tighten Your PLM Practices
- Know Your Products
- Look Forward, Not Backward
- Get Your Lead Times Right
- Manage Your Partners, Don't Let Them Manage You
- Manage By Exceptions
- Use Integrated Metrics to Drive Improvement
- Conduct Periodic Tune Ups
The most important thing is to honestly assess whether your inventory practices and systems are contributing to a balanced or unbalanced inventory. That’s why we recommend you conduct a diagnostic of your inventory management practices, and develop a blueprint to achieve a balanced inventory status in your company.
If you are interested in achieving a balanced inventory, we offer a No-Charge Starter Stage. During this Stage, we will help you assess your current inventory management practices, develop a preliminary business case, and start working your Balanced Inventory Blueprint.
We will publish bi-weekly articles that address each of the 10 Principles individually and how they can be applied within virtually any firm.
For more information, contact us at firstname.lastname@example.org or call 905.454.8529.