Why do you need a systematic inventory management?
Inventory is generally associated with costs. At the same time, inventory is often necessary to hedge against risks in the procurement process and fluctuating demand quantities. A systematic inventory management with clearly defined rules, such as Warehouse reaches, is therefore mandatory to optimally manage the trade-off between cost and responsiveness.
To ensure this, the highest possible service level with the lowest possible inventory levels should be achieved. On the one hand, this allows a high delivery reliability to be realized. On the other hand, the achieved reduction in working capital results in a release of additional financial resources, which improves liquidity and profitability. For this purpose, an increase of the Days Inventory Outstanding (DIO) is striven. Inventories are turned faster with a short DIO and are thus tied to the company less than capital.
As a result, the key challenge of inventory management is to position safety inventory at the optimal level at the right supply chain location. In addition, it is essential to avoid purely short-term effects and, based on sustainably optimized processes and procedures, to achieve a long-term stabilization of delivery reliability and reduction of inventories.
What do you benefit from the optimization of the inventorie?
- Liquidity: An optimization of the Inventory in the company results in a significant release of liquidity. Following that, the additional liquidity is available, for growth or efficiency enhancement projects or can be used as an alternative to reduce bank liabilities.
- Increase in profits: The released liquidity directly leads to a reduction of the interest expense, if these funds are used to reduce bank liabilities. In addition, optimized holdings have positive effects on many other cost and income items of the income statement, for example:
- Sales increase due to improved delivery capability
- Lower material costs due to lower article obsolescence and scrapping costs
- Reduced administrative effort through fewer mistakes
- Lower storage costs due to lower storage capacity requirements
- Fast Payback: Even a moderate inventory reduction is sufficient to amortize a project within a short time.
How do we optimize your inventory?
The optimization of inventory takes place in three steps:
- Analysis of the current situation: In the first step, the current processes and structures are examined for their potential for optimization in order to quickly discover potential for improvement. Of importance in this phase are benchmarks and checklists:
- A comparison of the company with other companies in the same industry can quickly lead to first insights. It is advantageous that most of the required information is found in company accounts and therefore is often freely accessible. Benchmarks never give more than first indications.
- In addition to interviews and data analyzes, detailed check listing is based on checklists that compare current processes with best practices.
- Concept development: In the second phase of the project, processes and processes are redesigned and the necessary measures (for example, target ranges) are worked out. In addition, a detailed implementation plan for the design of new processes / processes is created.
- Implementation: Many inventory optimization projects achieve only a temporary success, because after some time, the inventory grows back to its original level. In the implementation phase, we therefore place a special focus on sustainable implementation success. New processes must be firmly anchored in the employees’ minds and internalized by them. Implementation is controlled by holistic project management and regular reporting of the key inventory performance indicators.