The Good, The Bad and The Ugly!
Is “inventory” a good thing or a bad thing? The answer is a little bit of both. Inventory is an asset (a good thing), because we can not produce without inventory of ingredients or sell without inventory of finished goods. It is also a liability (a bad thing), because it ties up our cash and it is one of the seven deadly wastes. So how do we treat inventory? Though it’s easier said than done, the answer is to find the optimum levels that meet your organization’s needs.
There are many factors that need to be considered when trying to identify the “optimum inventory levels”, such as:
Customer Service Level
Minimum order quantities
Space availability etc.
It is also important to note that certain formulas, such as the Economic Order Quantity (EOQ) are based on specific assumptions (e.g. known & constant demand and lead time), and if those assumptions are not confirmed, the provided data will not be accurate, leading to potential shortages or over-stocking.
As with any process, risk mitigation has to be part of identifying the optimum inventory levels. That’s where Safety Stocks come into place. All of this data has to be considered to ensure a seamless inventory management.
In addition, we live in an ever-changing world. To assume that once calculated, our inventory levels should never change would be a critical mistake. In operations management, all systems, as much as possible, should be built on dynamic data to ensure continuous validity of the information being inferred. It is a good practice to periodically validate data and information to catch any errors before they cause problems.
If you find that you need assistance in setting up a robust Inventory Management & Optimization system for your organization, Verbum Consulting is always here to assist you. With years of experience in inventory management and optimization, let us help you save time and money so you can focus on your strategic goals and succeed.
Verbum Consulting – Anticipating What’s Ahead!