Operational Challenges in Inventory Management

The latest trend in all industries has been to outsource inventory management functions to Third Party Service providers. Companies outsource both Raw Material Inventory as well as Finished Goods to the Service Provider.

In case of finished goods inventory, depending upon the supply chain design, there may be multiple stocking points at national, regional and state levels. In such an event each of the warehouse a different service provider may manage operations, as one may not be able to find a supplier having operations all over the country.

Therefore the inventory in such a situation will be managed in the Company’s system as well as in the Service provider’s system. Inventory management and control becomes a critical function especially in such situations where multi locations and multiple service providers are involved.

To ensure Inventory control is maintained across all locations, following critical points if focused upon will help:

  1. Establish and outline Operations Process for Service Providers: Draw up SOP - Standard Operating procedure detailing warehouse operations process, warehouse inventory system process as well as documentation process.

    Especially in a 3rd Party Service Provider’s facility, it is important to have process adherence as well as defined management, authorization and escalation structure for operations failing which inventory operations will not be under control.

  2. Establish inventory visibility at each of the location through MIS Reports: Draw up list of reports and MIS data for all locations and ensure they are mailed to a central desk in the inventory team for daily review. The inventory team leader should analyze daily reports of all locations and highlight any non-conformity and resolve them as well as update the management.
  3. Initiate Daily Stock count procedure to be carried out at all of the locations and reported back to the inventory desk.

    Daily stock count should be able to reflect location accuracy, stock accuracy as well as transaction summary for the day.

  4. Monthly audits and inventory count should be implemented at all locations without fail and insist on one hundred percent adherence.
  5. Quarterly inventory - wall-to-wall count or half yearly and annual wall-to-wall count should be implemented depending upon the volume of transactions as well as value of transactions at each location.
  6. Central Inventory team to be responsible for ensuring review of all reports and controlling inventories at all locations.
  7. Inventory reconciliation - involves reconciling physical inventory at site with the system inventory at 3PL Site and then reconciling 3PL System stocks with company’s system stock.
  8. Visiting major sites and being present during physical stock audits on quarterly or half yearly basis is very important.
  9. Lastly keep reviewing processes and ensure training and re training is carried out regularly and at all times at site so that a process oriented culture is imbibed and all operating staff understand the importance of maintaining processes as well as inventory health.

Inventory is nothing but money to the company. If 3PL vendor is managing the inventory, needless to say you should have your processes in place to be able to control and maintain inventory health.

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