Complete halts result in backlogs and delays, which will impact warehouses and more importantly, their inventory management. As we have seen over the past 20 years, disruptions to supply chains have global impacts on all industries.
Inventory takes many forms, ranging from raw materials to finished goods. While holding large amounts of inventory enables a company to be responsive to fluctuations in customer demand, there are associated costs to consider. The ultimate success of these businesses is often dependent on their ability to provide customers with the right goods, at the right price, at the right place, at the right time.
Inventory exists because a buffer is needed to balance out the uncertainties between demand and supply. On the supply side, constraints such as large manufacturing batch sizes and supplier delivery lead time force organisations to hold some raw materials or components in stock so that products can be delivered to customers. The demand side is affected by inaccurate information and the fact that 100% accurate demand forecasts are not possible all the time. This means that some inventory should be on hand to satisfy service levels.
Different parts of the organisation require inventory for different reasons; while inventory can be viewed positively, holding inventory creates problems. Physical space needs to be allocated for stock and this space comes at a cost. The financial view on inventory is that it ties up cash and working capital which could be deployed more effectively elsewhere. Inventory also appears on a company’s balance sheet under assets, so reduced inventory results in a higher return on assets.
This is why the role of inventory management is to coordinate the actions of all business segments so that the appropriate level of stock is maintained to satisfy customer demand.
Navigating and embracing change with inventory management
The supply chain disruptions experienced throughout the pandemic has led to an increase in spending in this area, as reported in 2021’s CFO 4.0 Survey findings. The report underlined a growing impetus and trend in business to pursue both new markets and novel innovations. The lessons learned over of the past few years have been clear: Companies must diversify their products, offerings and services to survive in the post and present COVID paradigms.
Business and society are being dramatically influenced by exponential technologies, and manufacturing is no different. From the report, over the next 5 years, industries will focus on :
- Warehouse Automation (42%)
- Migration to Cloud-Based Services (37%)
- SMART Technologies (37%)
The role of technology in inventory management
The findings of the CFO 4.0 Survey are clear. Now more than ever, intelligent solutions will precipitate greater ROI in both tumultuous and stabilising conditions going forward. Getting supply management right involves people and process, but without appropriate technology the process can be cumbersome.
According to Gartner, key technical issues to address when aiming for supply chain excellence are data accuracy and timeliness. This is not typically found in situations where the technologies used are spreadsheets or stand-alone applications, because data has to be extracted, manipulated and reloaded several times, which can take time and creates opportunities for errors.
Data-related problems are far less likely to occur if the application used for planning and optimising inventory is in an ERP system, or integrated into ERP solution. A data-driven approach to inventory management provides the basis for better and faster decisions. ERP provides real-time tracking and applications that automate and streamline the inventory management process. With greater visibility through the value chain, manufacturers and distributors can increase efficiency, revenue and customer service.
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