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Control the costs of inventory management

Inventory management is an essential process for any industrial player. We must stockpile in order to be able to produce and stockpile in order to be able to serve customers up to their expectations.

POS system with Inventory management therefore applies to all the goods necessary for one or other of the stages of the company’s operating cycle:

  • Raw materials and components
  • Consumables
  • Spare parts for the maintenance of the machine park
  • Semi-finished products
  • Packaging
  • Finished products

However, the cost of inventory management is often high. It includes the costs of acquiring goods, the costs incurred by their conservation and possibly the costs of depreciation in the event of a malfunction in inventory management. Clearly, there are costs that must be minimized and others that must be avoided. Therein lays the double issue of inventory management.

Optimizing inventory management is based on three levers:

Anticipation of direct production needs

Anticipation of peripheral variables, upstream and downstream

The use of dedicated and efficient digital equipment

Anticipation of production needs in the service of inventory management

To anticipate production needs and therefore improve control of inventory management, the first resource available to manufacturers is the establishment of production indicators.

The most frequent are:

  • The overall equipment efficiency rate or Overall Equipment Effectiveness┬╣
  • Scrap rate
  • The period of immobilization

The data thus collected will allow you to improve your consumption forecasts and therefore better anticipate needs.

Then, your second lever is the fluidity of communication with your suppliers and your subcontractors.

Thanks to an ongoing dialogue, it will be easier for you to identify the potential risks of supply tensions and, on the contrary, to detect overabundance.

It’s up to you to adjust your inventory management, to avoid the two pitfalls of the process:

The shortage that grips the production system

Over-storage which affects competitiveness

This is why good communication with your subcontractors is strategic, for:

  • Be able to provide them on time with the necessary supplies to perform the tasks you entrust to them.
  • Manage the parts return schedule with them
  • Manage with them as early as possible any quality or compliance issues.

The episode of the Coronavirus crisis experienced in 2020 was a useful reminder of all the challenges of a supportive logistics chain and of risk mapping relating to supplies and outsourced operations.

Identification of upstream and downstream risks

Controlling the costs of inventory management also depends on monitoring peripheral indicators in relation to the production cycle itself.

For example, the fluidity of the relationship with sales forecasting is a lever for relevant adaptation of production.

In fact, the sooner you detect that a market trend is consolidating or, on the contrary, threatening a product line, the faster you adapt your inventory management more or less.

Rigorous monitoring of transport conditions and threats likely to reduce the efficiency of the logistics chain is another lever for responsiveness. Tight supply times, and the entire chain is undermined with a risk:

  • Shortage in a category of essential production inputs
  • Customer dissatisfaction if the schedule slips to deliver them
  • Breakage of production if exchanges with subcontractors are interrupted or if the stocks made available prove to be insufficient

The ability to script alternative solutions, for each proven logistics risk, and the ability to identify warning signs, improves the agility of your inventory management. Indeed, it thus becomes able to compensate very quickly for a difficulty at one point or another in the logistics chain by a temporary increase in the volumes stored.

The quality of inventory management of finished products also plays a role in overall cost control. The challenge here is to be able to compensate preventively the downtime of the production equipment.

An information system that closely connects manufacturing and inventory and in particular allows the sharing of maintenance schedules helps maintain distribution to customers even when production is reduced.


For more details, please visit: alfacybernetics.com

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