Inventory Control: Improving the Bottom Line Inventory control requires the tracking of all parts and materials purchased, products processed, and products stored and ready for shipment. Having a sophisticated tracking system alone does not improve your bottom line, it is how you use the information that your system provides. If your job responsibilities involve inventory control, you know how critical the function is to business success and the complexities involved in planning, executing and controlling your supply chain network. From a financial perspective, inventory control is no small matter.

Oftentimes, inventory is the largest asset item on a manufacturer’s or distributor’s balance sheet. As a result, there is a lot of management emphasis on keeping inventories down so they do not consume too much cash. The objectives of inventory reduction and minimization are more easily accomplished with modern inventory management processes that are working effectively. Inventory Control Problems In actual practice the vast majority of manufacturing and distribution companies suffer from lower customer service, higher costs and excessive inventories than are necessary.

Inventory control problems are usually the result of using poor processes, practices and antiquated support systems. The inventory management process is much more complex than the uninitiated understand. In fact, in many companies the inventory control department is perceived as little more than a clerical function. When this is the case, the fact is the function is probably not very effective. The likely result of this approach to inventory control is lots of material shortages, excessive inventories, high costs and poor customer service.

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For example, if a customer orders a product that requires a manufacturer to acquire 20 part numbers to assemble a product and then, only 19 of the 20 part numbers are available, you have nineteen part numbers which are excess inventory. Worse, the product can’t be shipped to create revenue and the customer is not serviced. Think for a moment about the complexities of making products that require hundreds and maybe thousands of part numbers to be available in the right quantity, at the right place and at the right time to make products to satisfy customer orders.

It is a complex network to control and a set of inventory management tasks that must be performed with precision. What Should Be Done? Too much inventory and not high enough customer service is very common, but unnecessary. There are proven methods that can help you accurately project customer demand and to calculate the inventory you will need to meet your defined level of customer service. Using the right techniques for sales forecasting and inventory management will allow you to monitor changes and respond to alerts when action needs to be taken.

The right approach to inventory control can produce dramatic benefits in customer service with lower inventory, no matter how complex your network is. Modern inventory management processes utilize new and more refined techniques that provide for dynamic optimization of inventories to maximize customer service with decreased inventory and lower costs. These improved approaches to inventory management are of major consequence to overall competitiveness where the highest level of customer service and delivered value can favorably impact market share and profits.

Understanding the Process Overall inventory control crosses a number of functions. The inventory control process can be divided into the following general categories: Demand management which covers the processes for sales and operations planning, sales forecasting and finished goods inventory deployment planning. 1. Inventory planning and ordering which is often accomplished with material requirements planning, often referred to by its acronym MRP or in a lean manufacturing environment kanban ordering is used to effect deliveries of material. . Inventory optimization systems are being advocated by some as the supply chain management mechanism that should be used to mathematically calculate where inventory should be deployed to satisfy predetermined supply chain management objectives. 3. Physical inventory control is a phrase that describes the receiving, movement, stocking and overall physical control of inventories. Effective inventory control is a vital function to help insure the success of manufacturing and distribution companies.

The effectiveness of inventory control is directly measurable by how successful a company is in providing high levels of customer service, low inventory investment, maximum throughput and low costs. Certainly, an area where management should apply a philosophy of aggressive improvement. Inventory Control: Improving the Bottom Line Inventory control requires the tracking of all parts and materials purchased, products processed, and products stored and ready for shipment.

Having a sophisticated tracking system alone does not improve your bottom line, it is how you use the information that your system provides. If your job responsibilities involve inventory control, you know how critical the function is to business success and the complexities involved in planning, executing and controlling your supply chain network. From a financial perspective, inventory control is no small matter. Oftentimes, inventory is the largest asset item on a manufacturer’s or distributor’s balance sheet.

As a result, there is a lot of management emphasis on keeping inventories down so they do not consume too much cash. The objectives of inventory reduction and minimization are more easily accomplished with modern inventory management processes that are working effectively. Inventory Control Problems In actual practice the vast majority of manufacturing and distribution companies suffer from lower customer service, higher costs and excessive inventories than are necessary.

Inventory control problems are usually the result of using poor processes, practices and antiquated support systems. The inventory management process is much more complex than the uninitiated understand. In fact, in many companies the inventory control department is perceived as little more than a clerical function. When this is the case, the fact is the function is probably not very effective. The likely result of this approach to inventory control is lots of material shortages, excessive inventories, high costs and poor customer service.

For example, if a customer orders a product that requires a manufacturer to acquire 20 part numbers to assemble a product and then, only 19 of the 20 part numbers are available, you have nineteen part numbers which are excess inventory. Worse, the product can’t be shipped to create revenue and the customer is not serviced. Think for a moment about the complexities of making products that require hundreds and maybe thousands of part numbers to be available in the right quantity, at the right place and at the right time to make products to satisfy customer orders.

It is a complex network to control and a set of inventory management tasks that must be performed with precision. What Should Be Done? Too much inventory and not high enough customer service is very common, but unnecessary. There are proven methods that can help you accurately project customer demand and to calculate the inventory you will need to meet your defined level of customer service. Using the right techniques for sales forecasting and inventory management will allow you to monitor changes and respond to alerts when action needs to be taken.

The right approach to inventory control can produce dramatic benefits in customer service with lower inventory, no matter how complex your network is. Modern inventory management processes utilize new and more refined techniques that provide for dynamic optimization of inventories to maximize customer service with decreased inventory and lower costs. These improved approaches to inventory management are of major consequence to overall competitiveness where the highest level of customer service and delivered value can favorably impact market share and profits.

Understanding the Process Overall inventory control crosses a number of functions. The inventory control process can be divided into the following general categories: Demand management which covers the processes for sales and operations planning, sales forecasting and finished goods inventory deployment planning. 1. Inventory planning and ordering which is often accomplished with material requirements planning, often referred to by its acronym MRP or in a lean manufacturing environment kanban ordering is used to effect deliveries of material. 2.

Inventory optimization systems are being advocated by some as the supply chain management mechanism that should be used to mathematically calculate where inventory should be deployed to satisfy predetermined supply chain management objectives. 3. Physical inventory control is a phrase that describes the receiving, movement, stocking and overall physical control of inventories. Effective inventory control is a vital function to help insure the success of manufacturing and distribution companies. The effectiveness of inventory control is directly measurable by how successful a company is in providing high levels of customer service, ow inventory investment, maximum throughput and low costs. Certainly, an area where management should apply a philosophy of aggressive improvement. Improving Inventory Accuracy 1. Step 1 Implement a cycle-count process in which a set percentage of inventory is counted each month. This percentage will be based on the number of times you wish to have your inventory counted annually. By counting 25 percent of inventory each month you will effectively complete three complete inventories each year. If planned and coordinated properly these cycle counts can be completed without interruption of your normal business activities. . Step 2 Enhance the effectiveness of your inventory counts by integrating the ABC inventory method, The fastest moving inventory items will be classified as “A” items. The next group of inventory items, those which are active but slightly below the fast-moving items will be classified as “B” items. Slow moving items, including obsolete inventory will be classified as “C” items. 3. Step 3 Count all “A” classification items monthly, each “B” classification every two months, and “C” classification can be counted each quarter.

This will insure the inventory items with the most turns and thus the highest probability of error will be counted most often. By counting these items more frequently errors can be identified, researched, and corrected in a timely manner, thus preventing interruption of service to your customer or production line. 4. Step 4 Develop a reporting method to record all inventory counts, their frequencies, and any variances found. Research all variances to discover the root cause of the discrepancy. These records can then be used to identify patterns or deficiencies in our system/process. Once a pattern is discovered, corrective measures can be taken to eliminate the problem/errors and increase inventory accuracy. Read more: How to Improve Inventory Management Control | eHow. com http://www. ehow. com/how_6763803_improve-inventory-management-control. html#ixzz0uuTYPREl Improving Inventory Control by Captain Larry Howard Inventory control is perhaps the single most important function within a supply support activity. Simply put, it is the process of counting and adjusting inventory levels in accordance with prescribed regulations.

Supply support activities systematically perform wall-to-wall, cyclic, and special inventories for the sole purpose of bringing stock accounting records into line with the actual physical locations of stock found in a warehouse or storage area. These inventories minimize any problems caused by undiscovered posting errors and operational gains and losses on the stock record account. The stock record officer (SRO) subsequently conducts research that either documents the reason for an adjustment or concludes that no reason could be found.

Unfortunately, this approach does little or nothing to “control” inventory. Instead of focusing on the results of cyclic counting, we should focus on eliminating inaccuracies before they occur. Here are three things that can help if you manage a supply support activity. Start by maintaining an inventory adjustment report (IAR) log that not only identifies the IAR document number with a corresponding gain or loss, but also notes the nomenclature, location, and reason for an adjustment. This will serve as a starting point for identifying trends in inventory inaccuracies by item, location, or type of error.

Second, the research conducted by the SRO must go beyond simply explaining or identifying the reason for an inaccuracy. It must extend to determining supply policy or procedural shortcomings. Third, develop an inventory schedule to supplement the required monthly 10-percent inventory. The reason for this is simple: the sooner an inventory inaccuracy is identified, the greater is the possibility of finding its true cause. Remember Pareto’s Law—a small number of items will dominate the results achieved in any situation—and prioritize your authorized stockage list (ASL) by item value; shoot for a 15-30-55-percent split.

The goal should be to achieve 100-percent inventory accuracy by eliminating the possibility of inaccuracy in the first place. Inventory errors cost money, time, and effort and will continue to occur until internal supply processes are examined in detail and revised procedures are put in place as preventive measures. Inventory control. If you’re like most shop owners, that seems like a contradiction in terms. It doesn’t have to though. You can control your inventory rather than the other way around. What does inventory mean to you?

Does it mean after-hours projects, such as extra paperwork or heated conversations with your bookkeeper over cost vs. markup vs. profitability? If you answered “yes,” inventory probably also means “piles of money” on the shelf. Inventory is money on the shelf. National averages for a typical shop range from $10,000 to $20,000 worth of inventory and 30 percent of that inventory is dead! A 21-month study conducted recently on what shop owners sell and what they stock, revealed that 11 percent of shop owners sell spark plugs but don’t stock them, while 18 percent stock spark plugs but don’t have what they need.

What is the purpose of inventory? Many shop owners think it’s there to facilitate shop operation by reducing rack time and increasing gross profit. In reality, however, inventory exists to improve your level of service. How? The right amount of the right part numbers will provide you with what you need when you need it, without enormous stress on your operating capital. Consider the following two methods of inventory control. Last In First Out (LIFO) means that when there is more than one of a given part number, you sell the last one received, first. The rationale being that the newest is probably the most expensive.

First In First Out (FIFO) means that when there is more than one of a given part number, you sell the one you’ve had the longest, first. The rationale? To keep your stock rotating. Whether you use LIFO or FIFO, the actual transfers are only taking place on paper. The old dusty part may be pulled off the shelf, but it’s the new expensive one that’s reduced from inventory. Ask your bookkeeper which is the correct method for your business. Why should you even consider these inventory control methods listed above? Take a moment to compare the value of your inventory to the value of some piece of your equipment.

When you purchased the expensive piece of equipment, you probably considered various things. You probably shopped for the best price and considered return on investment. If the equipment wouldn’t pay for itself, you probably would not have purchased it. After the purchase, you monitored your investment to maximize its use and, therefore, its return. All the same rules apply to your inventory investment. There are some fundamental differences, however, between your inventory investment and your capital investments. Your equipment is depreciable, while your inventory is taxable.

Your capital investments happen suddenly, while your inventory value creeps up gradually. At some point, most shop owners end up with a large inventory investment on which they pay taxes, yet rarely do they monitor or control it properly. Face it, it’s a time-consuming process in an industry that holds time at such a premium that you charge for it in six-minute increments. So what to do? Some think the best inventory is none at all. Inventory interferes with your productivity. How much time do you spend counting it, ordering and receiving it, tracking incorrect orders, stocking shelves and tracking returns?

How much energy goes into protecting it? How often do you give something away? Inventory Calculations When was the last time your parts percentage figures were at the level you require for profitability? There are two calculations that are often overlooked when determining inventory profitability. The first is cost-to-order, the second is cost-to-keep. The factors involved in cost-to-order are time and money. Time to calculate order quantities and time to do paperwork, time to receive it, stock it, correct errors and then time to track them, and money to pay someone to do it all.

If your cost-to-order is $10, what happens to the selling price? If it remains the same, you just lost money. (The cost of goods remains at $100, but the cost to order = $10. A $110 investment would gross $200. 20 on a 45 percent margin). You just lost $18. 20. There is also a calculation called cost-to-keep. Space does not permit a lengthy discussion, but the important point to consider is how much it costs to buy inventory based on how long you own it, as well as how much return on investment you could get on that dollar if it wasn’t on the shelf. You must also factor in cost-of-obsolescence.

For example, if it costs you 10 percent to keep something on the shelf, and you receive a 5 percent quantity discount, maybe you shouldn’t buy it. The lowest price is not always the best price. If gaining control of your inventory sounds like the impossible dream, it’s not. My recommendation is to look into just-in-time inventory. This means that you order on a regular basis and purchase only when you need to replenish what has been sold since the last order. Just-in-time inventory means you must have short inventory order cycles and accurate tracking to determine what and how much inventory to stock. It is an attainable goal.

Seven Steps To Improve Inventory Control The following seven steps can help you improve your inventory control, improve your level of service and improve your bottom line. Step One Determine which items are your real movers. To accomplish this, you must first determine what represents “dead” inventory in your store. Be realistic. Don’t forget about that shelf of dealer parts tucked away in the back. A good way to measure dead inventory is to evaluate inventory turns. Turns equal cost of goods sold (COGS) divided by inventory value. Calculate COGS on your inventory as a whole, then recalculate on specific lines such s belts or hoses. You may be surprised by the result. Your computer system should be able to provide accurate purchase data by line. If not, speak with your bookkeeper about supplying the proper information. Step Two Turn dust into dollars. You must get rid of what’s not moving. If you multiply your gross profit percent by what you can recover by turning it in, for example, 50 cents on the dollar, 30 cents on the dollar, etc. , you’ll arrive at the amount of reinvestment capital available to you. It’s important that you don’t get trapped by thinking about what you paid for it vs. what you can get for it now.

Inventory turns can be increased by either selling more parts, or by reducing inventory value. If inventory turns increase, so does your bottom line, guaranteed. Step Three Analyze your business profile. It’s important to consider what you have in stock vs. what types of repairs you perform. Do you do lots of brake repairs? Stock lots of brake parts? Do you ever have to order parts when doing a brake repair? How is the level of your service affected by having brake parts in inventory? Is it working? If not, why stock it? Step Four Determine what and how much to stock. Who makes the ordering decisions in your shop?

Does he/she consider seasonal items? Do you utilize replenishment ordering, or do you order to stock levels? If you use the latter, who determines the stock levels? Determining what to stock (and how much) is similar to determining your dead inventory. The difference is how much inventory do you really need? Again, your computer should be able to tell you what is selling and which items produce the greatest gross profits. If the gross profit percent is low on a given item, sales have to be high. But, if gross profit percent is high, you can get away with selling fewer of that item.

Remember the goal you want to maximize your level of service. If stocking an item doesn’t help you reach that goal, don’t stock it. Step Five Monitor sales for profitability. It’s easy to fall into the we-sell-lotsa-em, we-better-stock-lotsa-“em” trap. It’s a trap because high sales volume doesn’t necessarily equate to high profitability. If you’re losing money each time you sell one, you can’t make it up in volume. A better consideration would be to determine where the profit lies and unload everything that isn’t profitable. Gross profit per line item is one measure. How much it costs to wait for parts is another.

Most of this information is available from your computer (or your bookkeeper from information you’re already providing him/her). Remember, a 1 percent increase in gross profit equals a 1 percent increase in net profit, if the volume remains constant. Step Six Establish daily ordering. This step is nearly self-explanatory. Once you’ve determined what the movers are, gotten rid of the dead inventory, and determined what and how much to stock based on the types of repairs you perform (and the profitability), then you’re ready to order and receive parts daily to replenish yesterday’s sales.

If you’re automated, it won’t be a problem. If not, it’s still doable. Step Seven Buy smart. When selecting a supplier, realize that prices are so competitive and deliveries are so good that you do have choices. It’s important to evaluate what you can get from your supplier other than parts. For example, will your suppliers analyze your purchases and returns on an item level? What are your return privileges? What percent can be sent back “no questions asked”? Will they clean up your inventory? How often? Many of these important issues are overlooked when choosing a supplier.

Your job is to monitor your inventory and make smart choices. With the “hot shot” delivery capabilities available nationwide these days, there’s no need to stock anything that doesn’t sell quickly and for the right profit percentage. Inventory control is vital for any business, particularly in retail and wholesale industries. Knowing when to reorder so you can meet ongoing customer demand was once left to guess work on the part of the owner. But these days, thankfully, point of sale software can give you all the information you need to make the best judgment call.

Not only that, but by maintaining a strict control over this process you can automate your entire inventory control strategy to ensure that your cash flow is maximised to your benefit, rather than your detriment. Here are seven tips you can neutralise to improve your inventory control with the help of point of sale software. 1. Analyse Your Sales. When you know what your customers are ordering on a regular basis you have a clear indication of what items to stock. Use these numbers to set your reordering levels and check the trends every day. . Automatic Purchases. Use software to automatically produce purchase orders when stock level alerts are generated. This way the purchase orders can be sent or transmitted to your suppliers immediately. 3. Special Orders. Your point-of-sale software can be used to track special orders that fall outside your automatic system. Set up a reminder to check the status of special orders every day. 4. Track Lost Sales. Make sure that you record each time a customer declines to proceed with the sale because you don’t have sufficient stock.

This will alert you to the need to adjust your reorder levels. 5. Track Your Top Sellers. Your bestselling items are your bread and butter, so you want to make sure of two things. First, that you have sufficient stock. But, secondly and perhaps more importantly, you do not have too much stock. By holding too much inventory in one particular item you are locking up your cash, so make sure that you reorder only as regularly as you need to by maintaining minimum stock. 6. Check Stock Receipts. Make sure your warehouse staff check each receipt against the purchase order.

Businesses that automatically assume that the correct product has been shipped to them are making a big mistake. Before entering a stock receipt into the system, if you sure that it is completely accurate and in accordance with your purchase order. 7. Make Seasonal Adjustments. Many stock items will have sales trends that follow seasonal patterns. Nobody wants to stock overcoats during summer! Your POS software can be used to highlight spending patterns on items during different seasons or times of the year, so you can easily stay on top of your stock levels and order in advance of your anticipated seasonal needs.

There are many more ways that you will find the usual point of sale software to keep track of your inventory because each business has its own individual idiosyncrasies. The amount of data you have at your fingertips will enable you to keep control of your cash loss at the same time ensuring that you will be able to anticipate the spending patterns of your customers. |Neotechnology Business Systems is a boutique software developer of new and emerging technologies. Our business software is | |created with the end user in mind, born from consultation with businesses covering all the industries we service.

It is designed| |to be used by business professionals, not IT gurus, and achieve quality business results. For more information or to view our | |products, visit POS | 70+ Cost Reduction and Productivity Improvement Ideas [pic] < Back to 70+ Cost Reduction and Productivity Improvement Ideas Forecasting & Inventory Management – Reduce Inventory Costs through Inventory Strategies 17 inventory management ideas to help reduce inventory costs and improve management of forecasting and inventory pic]F. Curtis Barry & Company collected the following inventory cost saving strategies through years of working with multichannel companies to: improve the management of the inventory assets; enhance planning, forecasting and analysis; devise inventory strategy recommendations tailored to the unique needs of the business; modify organizational structure to be more efficient; and to implement more effective forecasting and inventory management systems. We’ve addressed issues of inventory cost savings and cost reduction with companies large and small.

Some of our clients include Chadwick’s, Brylane, Charming Shoppes, The Art Institute of Chicago, Gardener’s Supply, PetEdge, Bare Necessities, Frederick’s of Hollywood, Highlights For Children, LifeWay Christian Resources. If you’re looking for call center cost savings ideas or a Warehouse strategy we have those ideas as well. Need inventory management ideas that address your organization’s unique situation? We can help. Contact Jeff Barry by phone at (804) 740-8743, by e-mail at [email protected] com, or through our Request Information Form. 1. Benchmarking

Have you developed the necessary metrics for initial customer order fill rates, final fill, inventory turnover, gross margin, lost margin from liquidation, age of inventory, etc.? In turn have these become performance objectives for the Inventory Control Buyers? Contact us if we can help your company with an independent internal benchmarking study. 2. Streamline process Assess the processes of seasonal planning, weekly forecasting, end-of-season analysis for your multichannel business. Streamline how the Inventory Control buyers perform their work and manage inventory.

Process improvement should improve planning and forecasting accuracy, and lead to improvement in customer initial order fill rate and turnover. 3. Know your vendors What are your vendors’ pain points (space, cash, capacity)? What are their strengths? Understand these thoroughly to gain maximum leverage. Should you reduce the number of vendors you purchase from to get more leverage? 4. Establish a vendor scorecard Involve Merchandising, Inventory Control, Fulfillment and Accounting and set up a vendor scorecard to evaluate vendors.

This should include sales, margin, on-time delivery, significant problems, etc. Review it several times a year with the vendors. You may even want to take it a step further and set up a vendor recognition program for the top vendors. 5. Visit your top 20 vendors now This strengthens relationships. Include at least the Merchant and Inventory Control Buyer. Involve vendor’s senior management as well as yours. Have an agenda about your company’s direction, needs and expectations. 6. Manage your vendors Insist on costs, terms, and conditions with vendors that make sense for your company.

It is your responsibility to look out for your interests, theirs to look out for theirs! Develop vendor compliance and charge back policies to enforce compliance. 7. Negotiate terms Arrange and pay 2%10Net60 with all domestic vendors. 8. Provide limitless access to information systems Inventory Control Buyers must have laptops and VPN access to all tools. This pays for itself quickly and frequently. 9. Invest in systems Provide Inventory Control Buyers easy, efficient, accurate, and timely access to data. Ongoing training, report requests, modification requests should be a management priority.

This group spends more money than any other. Support them! See more on Inventory Management Systems Implementation Strategies. 10. Invest in inventory control staff The Inventory Control Department manages the largest balance sheet asset in the company. Hire and retain strong people, provide them tools, have high expectations of them, then reward their solid performance well. Should you have a different organizational structure? 11. Consistent forecasting philosophy Be sure all categories and SKUs are forecast using consistent methodology that fits your organization.

Challenge it often. 12. Review, recite, and retain key data IC Buyers MUST know their category and vendor inventory levels, turns, SKU count, and GM $ and %. More importantly, understand the impact of their actions to these metrics and to the business. 13. Clear a day’s-work-in-a-day Ensure timely and accurate data across the organization by demanding all receipts, put away, invoices, PO acknowledgments, orders, (all business transactions) are posted daily. 14. Renegotiate (always) New PO’s for in-season replenishment of items selling over forecast are due better costs.

Ask early and assertively for RTV and/or mark down money for poor performers. 15. Liquidation Is your company aggressive enough in identifying potential overstocks and putting them into one of 15 different methods used in multichannel companies? Reduce slow selling stock as close to in-season as possible to gain a higher cost recovery. 16. Inbound freight Have a qualified consultant perform a freight audit to see what additional savings can be gained. Join a freight consortium to maximize savings. Learn more about how an analysis can help with freight cost reduction. 7. Importing Imported products now represent 50% to 70% of all products in many companies and they give a considerably higher initial mark up and maintained margin. Is your staff managing this inventory effectively? They require longer lead times and higher vendor minimums, which can lead to higher inventories and slower turnover. These Inventory Cost Saving Strategies Are Just the Beginning. . If you are struggling with reducing inventory costs at your company, contact us. Our team can help your organization with tailored forecasting and inventory strategies.

Call (804) 740-8743 to get started. < Back to 70+ Cost Reduction and Productivity Improvement Ideas An Inventory Assessment with Quick ROI… Inventory, most likely the largest asset on your balance sheets. Managing it efficiently can be the difference between profitability and serious customer service issues. Companies rely on the experience of F. Curtis Barry & Company to assess their processes and develop sound inventory strategies. Our clients often need an outside expert to quickly come in, assess how they are managing inventory and to make actionable recommendations.

 

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Inventory Control System
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