Inventory

In today´s post, we will be zero in on key word in Supply Chain; inventory.

Since Toyota started its “just in time” strategy, there has been a lot of talking about the necessity of inventories and whether a company might hold raw materials, pieces, or finished goods in their warehouses. Whether your company is a retailer or a manufacturer there are several reasons for and against maintaining inventory.

Reasons for maintaining inventory:

-       Demand: Maintaining inventory ensures you always have product available when demand increases. Any business should keep an adequate supplies to meet expected and not so expected demands. This is essential for those businesses whose demand strongly flows due to seasonal or economic fluctuations or for those whose products are characterized by a rapid turnover and high demand.

-       Cost: Having enough space to keep the merchandise allows the companies to bulk buy at reduced costs. Suppliers often offer discounts on purchases above a certain quantity. Buying large amounts of goods and storing them on the companies’ facilities results in significant savings.

-      Time: For some companies the lead time from order to delivery is crucial, having enough merchandise ready to be delivered timely will ensure the customer gets the products promptly avoiding third party delivery charges and fostering new future purchases.

-          Inflation: In times of high inflation, holding vast supplies of inventory can result in substantial benefits for the company, which might be able to cope with the demand while avoiding the cost associated to the inflation.

-         Supply shortages, disruptions: When supply shortages or disruptions occurs whether they are expected or not, holding enough merchandise on inventory ensures the company´s ability to meet the demand and allows a certain degree of self sufficiency until these disruptions are solved.

Even though there are certain powerful reasons for maintaining inventories, it is true that there are also some reasons that might recommend avoiding stockholdings, some of these reasons are:

-         Space: Maintaining inventory requires a vast space in which the merchandise can be properly managed. This usually means having a warehouse with enough space to adequate a loading and unloading area, a picking space if needed, racking for efficient storage and any other facilities that are necessary to keep the merchandise stored. In addition to that, some products ask for concrete storage conditions such as specific temperature ranges, or certain isolating materials, that will help to preserve the goods or to avoid harms.

-       Cost: Holding inventory will make the company incur in costs, rent, equipment, insurance, workforce and so forth. Cost for maintaining inventory can quickly mount up getting to a position where large amounts of money are invested only to successfully manage your storage facilities.

-          Stock control and training: To effectively manage inventory, a high-tech computerized system must be installed and maintained, and staff must be properly trained. Every inventory control system will require the cooperation of all the employees and therefore adequate training will need to be provided, and that takes us to our previous point, costs. Training will imply sending the employees to training classes or holding training sessions at the workplace.

-         Time: Finally, another potential problem that comes with inventory control is that it takes time. Apart from the time invested in training, employees will have to get used to the new methods and in many cases money will be lost endowing the staff with the tools needed to manage the inventory accurately.
  

Despite of the costs associated to inventory management, it seems very complicated to avoid completely inventory and overall, the best option will be to keep a minimum amount of merchandise on inventory while arranging commercial deals with our purveyors to ensure continue flow of supplies.