Inventory Management: More than Just Ordering Less Stock?

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1 Inventory Management: More than Just Ordering Less Stock? A white paper written by Steve Downton and commissioned by Solarvista 31/10/13 V 1

2 Contents Executive Summary 4 A Holistic Approach 6 Is Less Really More? 8 Benefits, Benefits, Benefits 10 In Conclusion 12 Appendices 14 More information 14 Page 2 of 14

3 Executive Summary Page 3 of 14

4 Executive Summary Leading edge practitioners have long recognised that effective visible inventory management and stock control are very different from simple inventory reduction. As a result of a sophisticated inventory management system, a world class cost-effective service operation can differentiate itself from the competition, lower costs and drive up customer satisfaction. There is continued pressure for service to produce the right part in the right place at the right time and to do so at the lowest possible cost to the business. Consequently this effective inventory management has become a fundamental issue in achieving the right level of customer service and paramount to competing effectively in a fiercely competitive market. As the true value of accurate and effective inventory management becomes apparent however, many companies have realised that a totally effective logistics operation is difficult to establish without the proper mechanisms in place. Industry averages suggest that a 20 percent reduction in inventory is achievable with a computerized inventory control system. Donald Reimer, Corporate Detroit Page 4 of 14

5 A Holistic Approach Page 5 of 14

6 A Holistic Approach One way for businesses to manage their inventory, stock and parts holistically is for them to reassess their structure and to work seamlessly across functions. This is considered to be best practice; viewing the business from a customer s perspective and then focusing on delivering satisfied customers. Service enterprises who have either failed to recognise the need or haven t invested the time to implement a properly structured strategic process, have consequently suffered from a lack of focus and cohesion across operations. This results in divergent activities, which introduce inconsistency, inefficiency and increased costs into the service operation. Sophisticated inventory management uses a single system to integrate back-office processes with mobile applications, present total stock visibility and allow for advanced management reporting. By aligning what is available on a mobile device to what is accessible on the back-office system and automating processes such as POs and receipts of parts, businesses and their employees can be fully aware of the stock they carry in real time. Sophisticated inventory management systems will also offer a plethora of other functions for the mobile worker to ensure all stock and parts are traceable and reportable. This can include the ability to efficiently order, allocate, purchase, reserve, receive, remove and exchange parts directly from an engineer s mobile device. Most inventory "problems" are merely a reflection of management, design, process or operational problems. Paul Deis, August 2006 Page 6 of 14

7 Is Less Really More? Page 7 of 14

8 Is Less Really More? The traditional tools and skills are struggling in some businesses to meet the service level demands of customers; with the financial imperatives faced by all businesses, more must inevitably be done with less. One of the most important factors when considering managing your business s inventory is to know how to achieve equilibrium between having enough inventory and yet not having too much. Inventory is an expensive part of any business and not just accounting for the purchase cost but all other associated costs such as storage, handling and insurance. Reducing stock also reduces the risk of damage, obsolescence, theft and deterioration, which could potentially become expensive. By ensuring that the business has a fully competent system that can order appropriate quantities required for specific jobs, it is therefore reducing these costs as well as the risks associated with carrying surplus stock. Page 8 of 14

9 Benefits, Benefits, Benefits Page 9 of 14

10 Benefits, Benefits, Benefits Operational strategies supported by effective technology solutions, processes and infrastructure will allow the service organisation to deliver cost efficiently, while improving margins and increasing the resilience of the operation to face up to any potential market difficulties. Offering optimum levels of service and providing competitively priced services will position the business to take advantage of upturns in the market. The business should be able to live up to the promises made on its behalf, and deliver cost-effectively increasing customer satisfaction, retention and margins. Normally the challenge to achieving this type of operating solution is that most service companies are working within an existing infrastructure where they are continually changing on the run to keep up with the shifting environment. Using a fully integrated service management solution enables a business to create an infrastructure that is designed to be able to accommodate continual refinement, and able to keep up with the shifting environment, at times even anticipating it to allow positioning ahead of the competition. The improved use of communications should be seen by the business and customers as a positive move to provide better information about customer needs and requirements to both. The target is to minimise the fixed cost element of the operation keeping it variable where possible minimising overheads and creating high flexibility to deliver customer satisfaction. Page 10 of 14

11 In Conclusion Page 11 of 14

12 In Conclusion Through systems integration the business is able to support the customer requirements by understanding customer requirements and providing support across the whole operation. The ability to out-do competitors and sell cost effective solutions to customers requires differentiators, and these will come from an integrated systems solution enabling the business to have in-depth knowledge of customer requirements provided by top quality staff throughout an effective operation supported by a fully integrated technology solution. There are a number of inventory management systems, although it is worth conducting some research and being sure to choose a package that is right for your business; the benefits of such a system will far outweigh the costs. Effective inventory management will give businesses in any industry a distinct competitive advantage over their competitors. Chris Welsh, Solarvista. Page 12 of 14

13 Appendices Page 13 of 14

14 Appendices Donald Reimer, Corporate Detroit The Benefits of Inventory Control By: Donald Reimer. Paul Deis, August 2006 A Guide to Inventory Reduction By: Paul Deis (modified and Updated) and George J. Miller (originally) both of Proaction Other quotations taken from Customer Case Studies by Solarvista Software Ltd. More information Information about this publication can be found at or please send any enquiries by to [email protected]. Print and electronic rights are the property of Solarvista Software Ltd Page 14 of 14