In Max Mulder’s Essentials of Inventory Management, the following questions pose themselves when we begin to implement a policy in our businesses about inventory:
“Inventory in and of itself is not waste. Unnecessary inventory is waste. A key question is: What is unnecessary in the context of your organization?”
In manufacturing operations, inventory in excess of that needed to support current operations or research and development efforts would certainly be waste. However, is the inventory of a distributor that uses immediate availability of a large cross-section of items as an effective, profitable marketing tool, “unnecessary?”
Your company should have a zero-tolerance inventory policy. That is, it will not accept any inventory over a stated target.
But what is the target? Is it zero-tolerance from a day’s supply of inventory on-hand? Is it a zero-tolerance from a dollars invested standpoint (turns per year)? Is it zero-tolerance from an order fill rate of 97 percent?
For an organization to actually have useful inventory, it must understand its own objectives for the product it will have on-hand, on-order, or in-transit at any one time.
What inventory level is required for your organization to profitably and effectively operate?
Until the answers to these questions are determined, it will be difficult to get everyone within the organization to work toward the common, shared goal of eliminating inventory waste.
Effective inventory management is the result of outstanding inventory control and inventory management. What is the difference between inventory control and inventory management? Inventory control is managing the inventory that is already in your warehouse, stockroom, or store. That is:
- Knowing what products are “out there” and how much you have of each item
- Knowing exactly where each piece of each product is located in your warehouse
- Ensuring that all inventory remains in salable or usable condition
- Storing products to minimize the cost of filling customer orders
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