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Factors Leading to Inventory Inefficiencies

                                  

In any company inventory management is one area that the managements always focus on when it comes to improving business efficiencies and cutting costs. An inventory reduction drive always yields results, which are visible and releases cash back into business. Does this mean that inventory management is inefficient? The answer can be a yes and a no.

Inventory management function is dependant upon physical operations involving multiple locations and agencies and processes. The inter dependence upon transactions which are sequential and parallel, renders inventory susceptible to inefficiencies occurring in operations, transactions, and documentation over a period of time.

Another possible factor that can hamper the inventory efficiencies is the system setup that is used to manage the inventory. Quite often one can find that the system setup and process defined in the system is not user friendly and cumbersome. An efficient system should define and guide the physical
process as well as documentation process. The system process should in turn be developed based on the business process requirement. In many cases the operations are made to suit the system setup, which already exists in some basic form and not suited to the particular business process on hand. Poor system setup that does not match with the shop floor warehouse set up renders operations in efficient. It is very common to come across complaints from users with regard to non-availability of features to work around the processes; at times processes are lengthy and cumbersome leading to operational delays. Non availability of different reports and loops and bugs in the system can often push the operations teams to find shortcut methods to by pass the system processes and carry on with the work, resulting in inventory inefficiencies as well as inefficient operations.

In cases where a company has outsourced the inventory management to a third party service provider, the inventory management complications increase manifold. You have the company’s ERP or inventory system on one hand and the third part service providers inventory management system or warehouse system on the other hand. At any given point of time both have to be reflecting the same inventory accuracy and also match with physical stock available on shop floor, but this is not the case always. In cases where the systems are interfaced too inventory in one system cannot mirror the other and reconciling transactions between the two systems can be cumbersome and time consuming.

Health of the inventory accuracy as well as inventory management can also depend upon the inventory strategy of the company and its outlook.

A few companies treat inventory to be a necessary evil and just about ensure processes are compliant and inventory audits are regularly held. They do not deal with and treat inventory as an important asset that needs to be managed and reviewed to keep it lean and accurate.

Those companies, which are aware of the implications and benefits that a lean inventory management practice can have on their business, strive to build good management practices and keep finding ways to optimize the processes. Any efficiency brought about with change in processes adds to the company’s profits. Hence they give attention to and invest in driving inventory management strategy and practices, which are benchmarked against the best in the industry.

Decisions with regard to level of inventory to be carried, who owns and carries the inventory in the supply chain are some of the key decisions that drive efficiencies in inventory management. Besides this technology can also bring about process improvements speeding up the sales and delivery processes and to a certain extent reduces manpower resources and associated costs too.

Inventory management is an ongoing and dynamic process. To keep out the inefficiencies in systems, processes and physical operations, calls for active management participation and continuous improvement in all processes and systems that are involved in inventory management.

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