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Inventory Management- Do I have the Right Systems in Place?

by Don Dovgin

Companies have become interested in top notch troublefree solutions to run their warehouse and distribution centers. To do it correctly requires an understanding of the long term benefits of systems that are available today.

The initial approach to inventory management involves a diagnostic study of processes. Accurate measurements of costs-to-order requirements, inventory accumulations throughout the chain, defects, delays and returns are crucial to understanding the largest targets of opportunity. Economic modeling of the entire system typically involves use of analytical tools such as economic order quantity (EOQ), marginal cost/benefit analysis and quantification of returns to scale. Replenishment also plays an important role in good inventory management.

Efficient replenishment develops and implements transactional processes and systems that deliver responsive, efficient replenishment of materials, goods, and services. Your company should drive excess non-value-added cost and time out of the replenishment cycle, while maintaining high levels of service to customers. This can be done through the implementation of information technologies such as enterprise resource planning (ERP), electronic catalog and Web-based purchasing. Finally, take a look at your Warehouse Management Systems (WMS); chances are it needs to be more tailored to your business objectives.

The Possibilities with Technology

What if your products, your inventory or any of your physical assets could sense the characteristics of their environment, know their location and could tell you about it? This would mean the opportunity for saving money and creating new opportunities is significant.

For example, the supply chain—the process that takes a product from raw materials to manufacturing to distribution, can account for as much as 75 percent of a product's cost. At each point in the value chain from the manufacturer all the way through to the consumer, inventory management will drive value through improved efficiency in these and other areas. With technology based inventory management, businesses will know what the levels are in each of their facilities and their customers' facilities in real time, allowing more efficient replenishment and smaller inventories.

Businesses can reduce theft by having a system that reduces manual intervention and counting as well as systems that alert people as theft is occurring. Retailers are already painfully aware that when products are stolen either from stores or during delivery it is the work of professional thieves who are not deterred by the tagging technologies of typical store surveillance.

Inventory Management Facts:

• Initial estimates suggest that total savings in the United States from inventory management through automation could exceed US$70 billion and US$155 billion internationally. Research by Frost and Sullivan, an international marketing and training company, indicates there will be a steadily rising demand for RFID technology over the next four years at a constant rate of 33 percent.
• Moreover, revenue from the RFID industry is projected to reach nearly US$7.5 billion by 2006. Inventory management using WMS will have a major impact on every industry and business process. It will affect the supply chain, manufacturing, resources and raw materials. Implications will ripple through all aspects of companies, and out to their customers.

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