How often have you found yourself waiting for something you ordered to arrive? How often has something you wanted in the store been out of stock? Wrong size? Wrong color, etc? Does that happen too often?? Yea, I thought so…
During the pandemic delay times got ridiculous. There were shortages everywhere. Before that occurred, we were not too concerned about outages and shortages. But that event has become a bit of a wake up call for us.
What has caused this?
Believe it or not, significant increases in efficiency of logistics from companies like Walmart and Amazon have lulled us into a sense of false security that we can order almost anything and get it within a day or two. Amazon Prime, baby!!
Has this affected our customers, too?
Heck yea… It has almost created almost unrealistic expectations on the part of our customers in pressuring us to deliver likewise.
The result of this is that our customers have much less tolerance for what they perceive as a delay in fulfilling their demands. When it comes to delivering goods, not having the right products ready to go means lost sales. Ouch!! So how do we manage that problem? Oh that’s easy. We make sure we have adequate inventory on hand to meet customer demand.
But here is the dilemma: Inventory costs cash. The more inventory on hand, the more cash that gets sucked up into it. And as we all know, cash is king.
How can we resolve the dilemma?
Let’s start by giving the proper definition of inventory. Contrary to popular belief, inventory is not the stock of goods available for sale. Rather, inventory = time. What? Have I lost my mind? I assure you, no. We need to look at inventory as a time buffer between the time it takes to make something available for sale, and customer demand.
Illustration: When I buy a box of tissues, somewhere else a tree was cut down, the wood processed into pulp, tissues were manufactured, boxed, delivered to a distributor, then delivered to the retail store, then put on the shelf for me to pick up. And that is the supply chain. It takes time to go through all those processes.
When it comes to inventory management, I need to consider all parts of that supply chain in order to have the right amount of stock, in the right place, at the right time, at the right price. Only then does a sale occur.
Timing is everything when it comes to inventory management. You must consider the order time, manufacturing time, and shipping time when you make purchasing decisions. While that might sound complex, it doesn’t need to be if you set up your system properly.
If your inventory management includes the following, you should be in good shape:
- The rate that sales are happening (units/day)
- The speed that purchased units will arrive and be ready for sale (ordering days)
- Significant changes in sales trends (seasonality, putting something on sale, obsolescence, new products that will displace existing products, etc)
Most modern inventory systems will accommodate the first two bullet points. But you will need to have the awareness to manage the third bullet point.
Need some help getting on top of this, let us know. We can help.
