Questions you Should Ask Yourself about Inventory Management

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When analysing your inventory management policies you should be considering a series of characteristics your full supply chain end-to-end has. To start with, uncertainty is a serious question I would be looking at: both demand and lead times may be bound to probabilistic patterns that take them apart from a constant out-flow and in-flow of products; if you are a manufacturing company you should be including uncertainty in your production processes, as well.

Then, you should look at what happens if you happened to be at a stockout situation: will your customers agree with you an optional delivery date placing then a backorder, or are you going to lose the sell? You must have noticed that the previous questions is strongly connected to this one, since the higher the variation in demand/lead times, the more you will need to take care if your likelihood of losing a sell is over there. Obviously, costs and margins have to be considered, too; maybe the total cost of losing a sell is not to high… but please do take care with goodwill loss (and that’s difficult to measure, so most business forget or avoid including it in their considerations list).

Finally, you will need to review your stock review procedures. Nowadays, technology allows us to keep a continuous review policy, although maybe you do not bother or your systems do not allow for this, so you are controlling in a periodical manner at fixed time intervals.

Anyway, when mixing all these considerations into the spreadsheet (yeah!) you will be able to make an informed decision about which model is best for you, finding your optimal order sizes, reorder points, and inventory position (between other important inventory policies). Do you want us to explain you how? Give us a call!

If you are interested in the subject or in an easy application of the theory above, maybe you should have a look to the inventory management Android app we are developing. At the moment it does a couple of simple calculations, but there is in the roadmap the implementation of all the questions you should make yourself about inventory management.

Posted in Operations