How to Goldilocks your inventory

How to Goldilocks your inventory

Inventory can be a funny old thing: you can have too little or you can have too much and both ends of the spectrum are bad for business. Retailers know, for example, that ‘stock sells stock’; having stuff on hand has an obvious benefit for customers, whatever that stuff may be, because it’s what helps them overcome the unexpected. A Just-In-Time supply chain is all well and good from a capital preservation standpoint, but if a production line goes down somewhere owing to a failed component, that’s where stock on hand makes all the difference. It’s also where a supplier can easily justify a margin.

The trick, then, is to optimise stock holding. It’s a Goldilocks-level balance which is required: not too much, but also not too little. Getting it just right means every time a customer needs something, the correct SKU in the right quantity is ready to go off the shelf. Optimised stock holding means efficient capital allocation on the one hand. It also means being able to keep customers happy even when the unexpected happens, on the other.

Now here’s the surprise. The first step and biggest trick to managing inventory and warehousing effectively depends not on great software to get the Goldilocks balance right (although it definitely helps…in fact, good software systems are utterly indispensable in managing complex supply chains). Probably most important is the human factor; understanding your business, your customers and indeed your inventory.

We’re not going to presume to understand your business better than you do, so we’ll just go right ahead and acknowledge that you have the necessary nous to know what you need on hand and in what quantities. So that’s good news for you, because you’re already in a position to improve things.

But when it comes to the technology systems necessary to support you, well, that is our area of expertise. And for most businesses with complex supply chains, an integrated ERP system which provides visibility across the entire operation is first prize.

Visibility, as you’ll appreciate, is a big deal for inventory management (actually, for the management of a business as a whole). An ERP solution should provide the ability to accurately track internal inventory, it should provide data analytics, the ability to segment products and it should all work on any device, including smartphones.

But here’s the thing. Even though good ERP systems will provide most of what you are likely to need in terms of inventory management, there could be gaps. Businesses are famous for doing things differently; often, that’s where your competitive advantage will sit. This can make for a challenge that standard ERP systems simply cannot meet.

Take RLB Packaging as an example. With up to 80 percent of the goods it supplies running on back-orders (because the packaging is custom-designed), the company was saddled with a major overhead in terms of manual processing and literal paperwork.

We worked with RLB’s experts to understand the business requirement, and then develop a custom solution which greatly accelerates the processing of orders, while also further optimising inventory. This is one of the more complex solutions we’ve delivered – but it has resulted in a bit of a fairy tale ending for the company. Now imagine what we could achieve working with you.

A final thought. Optimising inventory isn’t only about internal optimisation, either. You can go a step (or steps) further and integrate your ERP with suppliers and partners to further amplify the benefit the system is capable of delivering: now you can track the movement of goods accurately from upstream, and further on down to your customers. Emerging technologies like the Internet of Things provide a tantalising prospect, as they could allow accurate insights into how various items are performing ‘in the field’; if that data is pulled all the way through the supply chain, it could have seriously useful implications for inventory management, taking Just-In-Time and inventory optimisation to new levels.

But, of course, there’s no point getting ahead of matters. The first steps are internal; with your house (and warehouse and supply chain) in order, you can start looking for further advantages down the track.

Juanita Potgieter

Juanita Potgieter

With over 10 years’ experience in various marketing fields, Juanita is an action-oriented Marketing Manager with a proven track record of creating marketing initiatives and managing new product development to drive growth. Prior to joining Verde, Juanita worked within strategic business development and marketing management roles at several international companies.

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