Behind each successful heavy vehicle, transportation, and construction business is an effective inventory management system running behind the curtains. Inventory is one of the essential aspects of a business, and perfecting it plays a significant role in the overall growth and success of your business. In inventory management, like all aspects of business, failing to plan is planning to lose money, time, and customers in the process. This piece will tell you everything you need to know about effective inventory management—what it brings to the table and why having one isn’t such a bad idea after all.
What Is Inventory Management
Inventory management is the process of planning for the purchase, storage, and vending of stock. This stock can include parts, raw materials, and processed goods. The concept of inventory management isn’t new at all. In fact, it’s been here for ages. Subsequently, any warehouse you come across probably has an inventory management system, however ineffective it might be.
That said, the question isn’t whether or not you have a system. The matter lies in the effectiveness of your system.
Signs You Need Better Inventory Management in Your Business
Contrary to popular belief, bad inventory management is subtle; your warehouse doesn’t have to be falling apart for your inventory management to be bad. Often, ineffective inventory management disguises itself in minor inconveniences and inefficiencies that add up into significant issues that affect your operation. This brings us to the question, “How do I know that my inventory management could need some help?” Some of the signs of ineffective inventory management include:
1. Lack of Reliable Metrics
Does your warehouse have any metrics on its operation? Well, knowing the number of parts you have, their names, and vendors isn’t enough. You also have to get insight on parts that are missing, delayed, or likely to have a shortage. Insufficient metrics (or the lack of them entirely) is one of the signs that your inventory management isn’t as effective as it could be.
2. Manual Inventory Management
How many papers do you have to go through before storing or retrieving a particular part in a warehouse? The abundance of pens, paper, and spreadsheets in your warehouse is one of the telling signs of an inventory system that could do better. Manual inventory can work. However, its inconveniences and the risk exposure it brings to your warehouse make it not worth it.
3. Overstocking and Understocking
Do you have a bunch of parts in your warehouse taking up space that you never seem to use? If so, there’s a high chance you face another problem-running short of essential parts that you often use. These occurrences are signs of ineffective warehouse management that often go hand-in-hand because of overstocking and understocking.
4. Frequently Hit By Supply Shocks
Being hit by an unprecedented supply shock once shouldn’t raise eyebrows that much. However, having a warehouse that suffers the same supply shocks year in year out is a different story altogether. An inefficient inventory management system robs you of crucial insight and foresight that you could leverage to mitigate the effects of supply shocks.
5. Over-Reliance on Safety Stock
If you often have to dip into your contingency stock to run your operations, that shows that your emergency plan is working, but your inventory management isn’t. Running your operations on contingencies is one of the tell-tale signs that your inventory management system isn’t as effective as it should be.
Benefits of Having an Effective Warehouse System
Efficient inventory management comes with its fair share of advantages for any business that embraces it. Some of these advantages are:
1. Better Reporting With an Inventory Management
One of the most underrated advantages of an effective warehouse system is the insight it brings into your operation.
With effective inventory management, you can be able to see:
- How much you spend each year on specific parts
- The parts that are essential to your operation
- Your most reliable and unreliable vendors
- Your current stock and the parts that you’ll run out of soon
The insight you get from effective inventory management goes a long way in helping your team with informed decision-making. For example, the insight on how much you spend annually on each part may help you find your most expensive spare part. With this knowledge, you can then seek an alternative part or vendor hence making cost savings.
2. Cost Savings
Inefficient inventory management not only consumes time but also costs money too. With that, embracing an efficient inventory management system allows you to make significant cost savings. First, the precision that effective inventory management brings helps you save on storage costs. That’s because storing excess or obsolete parts, regardless of how free it may be, costs money. Moreover, it enables your operation to eliminate the cost associated with human error.
You’ve probably ordered a wrong or excess part once and had to pay for it. Above that, it also significantly reduces your chances of purchasing excess or obsolete stock or parts.
3. Avoiding Stocks-Outs and Excess Stocks
Anybody who has ever been in charge of a warehouse has had a stock-out experience. This is when you urgently need a spare part only to realize that you don’t have enough of it in stock. Subsequently, you’ve probably had an experience where you have an abundance of parts that you don’t need.
Proper inventory management helps you avoid buying excess spare parts or having a shortage of spare parts when you need them. The system notifies you whenever there’s an excess supply of a spare part to prevent you from buying more. On the other hand, it notifies you when you’re running low on your stock for a part to prevent you from running low.
4. Better Terms With Vendors and Suppliers
Lousy inventory management will always put you at loggerheads with your vendors and suppliers. An unplanned shortage of an essential part due to the weather may leave you frustrated with your suppliers. Subsequently, missing a part that delays your operation may ruin your relationship with your vendors and end customers.
Check Out Part 2 to Learn More
Effective inventory management gives you insight on what parts you may need, at what time you need them, and the most reliable vendor to sort these parts. This insight gives you the confidence to buy in bulk, pay your suppliers in time and even negotiate discounts while you’re at it. Read Importance of Inventory Management Part 2 here.
Missed Importance of Inventory Management Part 1? You can find it here.