Beata Leyland
Inventory Analyst & Business Owner & Author of this article
Inventory refers to all companies selling tangible goods, and excessive inventory is a problem of many of them.
Intrigued ?
In the time of trade wars and tariffs many companies are trying to build back-up inventory as a business strategy, while others are scaling back and slimming their product offer.
No matter what’s your intention it’s important to record your inventory, create a system which will help you better manage it, and which is transparent enough to make sure your forecasts are only getting better!
How to create a sustainable inventory model (from a high-level point of view)?
Whoever creates the sales forecast MUST speak openly about methodology with the supervisor.
The planner must have accurate data from the sales team.
Methodology of calculating has to make sense (not so obvious)
How to make sure inventory is correct, if point 1 Methodology is fixed ?
Frankly, it’s not so easy as you still must include many variables.
It takes a while to get to the point where all data in the forecast makes sense and are a true reflection of reality (that’s why it is so important to openly discuss all issues across departments).
Soon my article about Risk Mitigation in Supply Chain will be released to help you to understand the problem better.
In the meantime, let me show you a few practical examples of how to solve the most common problems.
In my view, issues with inventory reflect communication problems within the company
FIRST-TIME INVENTORY
Company A bought a big load of toys (1 x 20ft container of children toys) and now wants to warehouse and sell them.
- Using a 3PL company as a 3rd party provider might help you with everything that was ordered; however, it might be a pricy option.
- When you unload all toys into the warehouse you need to check if everything arrived, and in good condition (Rare case! In case of damaged goods make sure they are not mixed with well-working ones) and then record all for your own records.
How to record your goods?
You can use a recording software program or start building a database using Excel Spreadsheet.
Whatever solution you choose remember that you need to understand what you are building. What does that mean? Try to imagine the following schema:
If all toys came from the same supplier, it will be good to maybe start an inventory system from it, i.e. the supplier is called Alpha so beginning will be A and then combination from the graph, so our Teddy Bear will be A1a (and the serial number of the producer if you wish to incl. at least a part)
Why this is so important?
One day your company will grow, and you will have supplier B, C, D, E and F.
Your sales team and planner will have a meeting to analyse data, talk about AI automation and without a database which you can understand you will need to pay crazy money for someone to repair something which could have been fixed from the very beginning.
Waste of time and money, right? Btw, you can also advise a 3rd party provider how you want your goods to be recorded.
Reading inventory shouldn’t be complicated so help yourself if you can.
Also, with more sales you will see which items sell the best, how fast, which ones are damaged and why.
Everything will give you better control of the situation and help you navigate your issues better!
EXCESSIVE INVENTORY
What to do if you ordered way too many Teddy Bears and they do not sell for whatever reason?
- Find different sales channels.
If Teddy Bears are boycotted in the EU and U.S, then maybe Australia, South America or Africa would love them?
Perhaps you can make the Teddy Bear a part of a package deal, for example together with a lollipop.
Offer discounts
- Change marketing strategy. i.e. repacking might work miracles.
(article “Marketing for Beginners” coming soon )
- Sell out excessive inventory to brokers who can find buyers worldwide. You will lose value, but this is better than writing off.
- Donation or write off
- Selling goods by pieces to recycle raw materials
NOT HAVING ENOUGH INVENTORY
What if supplier A has a production issue and demand is high?
Searching for supplier B and C should happen as soon as you see clients liking your Teddy Bear.
You can choose from global or local suppliers to prevent such a scenario in the first place, but if it’s already happened, then re-order stock ASAP, and in the meantime offer some special price for waiting and search for suppliers B, C, D … etc.
This article is the first in a series that will explore inventory ( inventory basic )
If you need help with inventory, reporting, sourcing, risk mitigation
or someone who can manage all operational activities by being an external buyer /procurement manager we can definitely help you!
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