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Common Inventory Management Errors and How to Fix Them

Common Inventory Management Errors and How to Fix Them
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MRO inventory is both an integral part of companies’ business operations and one of their most extensive investments. Mistakes made in the ordering, handling, and distribution of indirect inventory bear directly on a firm’s success. The most common and costly inventory-management errors can be traced to three root causes:

  • Departments that are not fully integrated
  • Unexperienced or inadequately equipped employees
  • Information that is incomplete, inaccurate, or inaccessible

Recognizing these deficiencies in your inventory management procedures is the first step toward remedying them.

Your Demand Forecasts Are Hazy

It is difficult to maintain optimal inventory levels if you cannot determine which and when spare parts and maintenance materials will be used. Old, inaccurate or overly aggregated demand data forces inventory managers to guess how much of each SKU to keep on hand. Reordering becomes reactionary or automatic, triggered by the calendar, rather than the market.

When blind ordering comes too late, stock outs, excessive production downtime, lost sales, and disillusioned customers are often the result. More commonly, to avoid stock outs, inventory managers order too much, too soon, and too often. But this peace of mind also eats into company profits – in the form of wasted space, carrying costs, labor, and obsolescence.

Firms can get a handle on demand starting with three simple steps:

  1. Calculate fill rates and inventory turns for each MRO item.
  2. Extrapolate replenishment schedules with the aim of reducing total inventory, maintaining high service levels, and reducing shipping costs.
  3. Determine each supply’s lead time between ordering and fulfillment, and assign optimal reorder points to assure inventory does not fluctuate outside prescribed minimums and maximums.

Your People Are Poorly Equipped

The balance sheet tells us that inventory is an asset. You will either sell it (in the case of finished goods) or use it to make things you can sell (raw material and MRO inventory). But even at optimal levels, inventory depreciates, occupies otherwise useful space, and ties up working capital. In seeking ways to best manage these costs, manufacturers – consciously or subconsciously – may leave those responsible for inventory control without the tools, training, or experience they need to succeed.

This may manifest in insufficient training for warehouse managers. Companies may believe their investment in sophisticated software is a suitable substitute for training. But software is not foolproof; it cannot solve problems on its own. It needs input, analysis, and action from employees. Other times, a companies’ desire to limit the resources they commit to warehouse functions creates environments that breed errors.

Give your warehouse workers enough space and time to process orders and conduct housekeeping operations. Forcing them to toil in cramped quarters can lead to incorrect accounting for materials, especially during receipt, delivery, and bulk shipping. Hire enough trained staff so they are not tempted to cut corners in organizing inventory arriving late in the day, in their haste to finish processing of the day’s orders.

Your Process Is Disconnected

Integration, transparency and communication within the supply chain management department and with other departments and processes cannot only streamline inventory management but also transform it into a strategic asset.

Obviously, inventory management functions must be synced with production to ensure sufficient inputs are available to meet manufacturing forecasts, and with maintenance to keep necessary spare parts, cleansers, lubricants, and other MRO materials on hand. Connections with other departments may not be as obvious, but are just as critical if supply chain management is to take its rightful place as a strategic task.

For instance, integrating inventory with finance not only ensures accurate financial statements demanded by investors and the IRS, it also allows companies to allocate material costs to specific jobs and product lines. Communicating with marketing provides insights into particular customers and distribution channels, giving firms options to innovate sales promotions, volume discounts, etc.

SDI Solutions

Combining our supplier evaluation service optimization experience with proprietary forecasting ordering, and purchasing algorithms, SDI takes the pain and guesswork out of MRO inventory management. For a demonstration of how we can optimize your inventory process and integrate your entire supply chain, call SDI toll-free at 844-235-9657 or fill out an online form today.

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