How to manage inventory effectively

 The expansion period of any business is very critical.  It is an accepted trend that there is a need of better business plans and decisions when your business is making a transition from an ordinary to extra-ordinary status.

Some sections of the business are like stubborn child; they need most of the attention. These sections are loved by all and always seen as the “dearest” one. One of such sections is Sales.

See, now you also got more interested in reading this article.

Well, it is true! Sales department and personnel are stars of the management eyes. They are always looked upon in the times of crisis. They shoulder the maximum responsibility for the business because the efforts of many other departments, like production, strategy, etc. is before them and they have to let those efforts reach to the expected corner of the world. Due this charm of sales division, they enjoy power. But with great power comes great responsibility ( One of the favourite statement from Spider Man Movie).

Let us see the list of responsibility for a sales division :

• The management of sales process begins with an inception of business idea. So personnel have to make the horses of his mind run from that particular instance.

• Correct analysis of market research by marketing personnel, is also an important aspect for effective sales.

• When all hardwork proves to be successful and sale is actually happening, the division has to take care of the processes like making stock available as the demanded quantity, shipping the products to correct destination, minimize breakage and amounts of good returned, etc.

• And most of all, there is a huge responsibility of fulfilling the promises, made to customer. Promises like provision of discount, product offers, bulk discounts, etc. has to be met and that too with the minimum loss.

Having product in hand can only make a sales executive more confident. This directly implies that business should have an effective inventory and its process.

Before we could explore what should be done for effective inventory management, we should understand challenges of inventory management. They are:

1. Increase in number of back orders

2. Low Inventory Turns

3. High Customer Turnover rate

4. Periodic Lost Sales

5. Periodic lack of sufficient storage space

6. Inventory Variance

7. Obsolete inventory

When above mentioned 7 factors are observed more often, it’s a warning bell. Each symptom can be abolished with few general and more specific steps. Some suggestions may include

1. Create system that gives more inventory visibility.

2. Introduce aging (FSN) analysis of Inventory.

3. Offer incentives for meeting inventory targets. This would create sense of accountability among managers.

4. Classify the inventory on some parameters; this makes managers to focus on big ticket items.

5. Improve surveillance efficiency.

6. Optimize and shorten the ordering process for faster business.

7. Share POS information and consumption patterns with you vendors so that they make themselves ready for variant nature of your inventory demand.

8. Share the responsibility for avoiding stock outs and excess inventory with your vendors.

9. Achieve synchronized demand-supply process.

10. Make strategies to reduce supply lead time.

11. Choose flexible vendors who can quickly adopt to changing demands of your inventory.

12. Learn and explore effective forecasting methodology.

13. Go for production techniques which are modular in nature. This mitigates risk and gives enough time to rollback in case of any incorrect approach.

14. Watch out for dependant demand products.

15. Consider Inventory balancing in a decentralized inventory carrying situation;

Investment is needed in managing the inventory process but here the large amount money cannot only guarantee the success. What is more important is proper division of this investment among various components that make the expense for inventory management.

There are following named costs

The percentage expenditure that should be made on inventory cost is summarized in the following pie chart

The figures shown by the graph will help a business man to strategize and allows him invest wisely. It is important to prioritize the requirement.

Please comment to let us add more to our understanding.

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