Published on: August 07, 2015
in: Company News
Managing inventory can be a complicated process for warehousing and distribution companies. Knowing how much inventory to purchase and then managing that same inventory is not an exact science. We know there are many factors that go into warehousing and distribution management. In an attempt to demystify some of the complications involved with effective inventory management, let’s take a closer look at how to implement financial management systems that can help.
How is this inventory control effectiveness measured? Traditionally, this is done by measuring how successful a company is at reducing inventory investment while still meeting customer needs and customer service goals. It is also done by achieving maximum output while simultaneously keeping costs contained. In essence, it comes down to determining what items to stock, how many of each item is necessary to keep stocked, and when more of that item should be ordered.
This “simplistic” rule for effective inventory control does not create a complete picture of the complex reality. In practice, simply knowing what to stock and how much is difficult to carry out in practice. Three overarching categories complicate the process, but having a financial management system such as Sage 100 or Sage 300 can help. Let’s take a closer look at the complications.
Factors Complicating the Inventory Control Process
1. Conflicting Objectives in Different Departments within the Company
If you think about, there are some parts of your business that are probably seeking to increase inventory. At the same time, others are trying to decrease it. This complicates things as viewpoints differ on how to truly achieve better profitability.
If the sales department wants to emphasize and prioritize the speed of delivery to keep up with customers and satisfy demands, they will want inventory amounts of finished goods to be high. Likewise, the purchasing department wants high levels of inventory as well. This is because they can get discounts when ordering large quantities at the same time. The production team wants all parts and materials to be readily available to keep efficiency along the line high. In addition, running large batch sizes is more efficient. Increased inventory is a good thing in sales, purchasing, and production.
On the other hand, the finance department and product developers are watching trends. They want to decrease inventory of existing products in order to make room for new products. Management wants inventory decreases as well because large amounts of inventory translate into less cash flow.
2. Unpredictable Supply and Demand
There are so many factors that make predicting supply and demand difficult. These supply difficulties include unsteady supplier performance, supply chain disruptions, material scarcities, perishability of raw materials, obsolescence of products, etc. Buffering stocking levels is important in order to provide safety days of lead-time supply. The demand difficulties include the fluctuating economy, constantly changing products due to innovation, and high-traffic sales on some products with only occasional or seasonal sales of other items. This requires responding to demand individually by item in order to achieve appropriate stocking levels.
3. Warehousing and Distribution across a Variety of Locations
Manufacturers and distributors also face the problem of accessibility. This stems from when finished goods for sale and parts for assembly are not all housed in the same location. Instead, they are spread over multiple locations. This makes easy access to needed items difficult.
Even with these complications in mind, it is still important to focus on two inventory management keys to success. These are meeting customer needs and stocking the least amount of inventory possible. Enterprise resource planning (ERP) software can help you with both of these. The reality is that inventory management is an area being targeted aggressively for improvement by distributors and manufacturers. Do you need to improve inventory management as well?
Mindover Software provides award-winning financial management systems and consulting solutions spanning the business lifecycle to small and mid-sized businesses. With consultants in Dallas, San Antonio and Austin, Mindover Software provides strong local support with the resources of a national company. Learn more about two solutions we offer here at Mindover Software by clicking on each solution: Sage 300 and Sage 100.
Download our whitepaper “Better Inventory Management: Big Challenges, Big Data, Emerging Solutions” for further information on improving inventory management and overcoming the potential complications of inventory control.
Many of our experienced professionals are CPA’s and MBA’s with 10 – 20 years of experience designing and supporting advanced business solutions for companies like yours. They are relentless in support of solutions that help you meet and exceed your business goals. Once an implementation is complete, they will continue to partner with you to measure performance and ensure your ongoing needs are met with the best support levels in the industry.
As a Sage Software Select business partner, we can align many of the world’s best software solutions to meet your diverse needs. In short, we are a company available on demand to meet your business goals for today and far into the future. Contact us to learn more.