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Inventory Management
Systematic inventory management
Inventories are generally associated with costs. At the same time, however, inventories are often necessary to hedge against risks in the procurement process and fluctuating demand volumes. Systematic inventory management with clearly defined rules, such as stock ranges, is therefore essential in order to optimally manage the trade-off between costs and responsiveness. To ensure this, the highest possible target service level should be achieved with the lowest possible stock levels. On the one hand, this allows a high level of delivery reliability to be achieved. On the other hand, the reduction in working capital leads to the release of additional financial resources, which improves liquidity and profitability.
What are the challenges in inventory management?
Effective inventory management is crucial to the smooth running of a business. However, organizations face a variety of challenges in this area that make it difficult to manage their inventory efficiently and cost-effectively. Therefore, they require careful planning, the use of appropriate technologies and constant adaptation to changing conditions (e.g. through dynamic inventory parameters). Potential challenges include
Demand forecasts
Difficulties in accurately predicting customer demand, especially in rapidly changing markets, can lead to overstocking or stockouts.
Storage costs/space
Considerable costs for the storage of goods, especially in urban areas, as well as high expenses for external storage facilities require the minimization of storage costs without increasing the risk of stockouts.
Seasonality and trends
Seasonal fluctuations and rapidly changing trends make inventory planning more difficult, as companies have to predict when demand will rise or fall.
Traceability and compliance
Compliance with regulations and the traceability of products are primarily important in regulated industries such as food and pharmaceuticals.
Data quality and management
The quality of the data used for inventory management is crucial, as inaccurate or outdated data can lead to poor decisions.
Customer requirements
Rising customer expectations of fast delivery times and high product availability are increasing the pressure on inventory management.
What are the advantages of optimizing inventory management?
Optimizing the company’s inventories primarily results in a significant release of liquidity. This additional liquidity is then available for growth or efficiency improvement projects, for example, or can alternatively be used to reduce bank liabilities.
The freed-up liquidity leads directly to a reduction in interest expenses if these funds are used to reduce bank liabilities. In addition, optimized inventories have a positive impact on many other cost and revenue items in the income statement, e.g:
- Increased sales due to improved delivery capacity
- Lower cost of materials due to fewer items
- Obsolescence and scrapping costs
- Lower administrative costs due to fewer errors
Even a moderate reduction in inventory is sufficient to amortize a project within a short period of time.
Improving the availability of relevant articles and raising service levels increases customer satisfaction.
Optimized warehouse utilization reduces inefficiencies such as stock transfers to access inventory, thus improving process stability and efficiency.
How do we approach inventory optimization?
Inventory optimization is carried out in three steps:
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1
Analysis of the current situation
In the first step, the current processes and structures are examined for their optimization potential in order to quickly uncover any potential for improvement. Benchmarks and checklists are of particular importance in this phase:
- A comparison of the company with other companies in the same sector can quickly lead to initial findings. The advantage here is that most of the necessary information can be found in the company’s financial statements and is therefore often freely accessible. However, benchmarks never provide more than initial indications.
- In addition to interviews and data analyses, checklists are primarily used to determine the potential in detail, on the basis of which current processes are compared with best practices.
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2
Concept development
In the second project phase, processes and workflows are redesigned and the necessary measures (e.g. target ranges) are developed. In addition, a detailed implementation plan is drawn up for the design of new workflows/processes.
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3
Implementation
Many inventory optimization projects only achieve temporary success, as the inventory returns to its original level after some time. During the implementation phase, we therefore place a particular focus on sustainable implementation success. New processes must be firmly anchored in the minds of employees and internalized by them. Implementation is controlled by means of holistic project management and regular supply chain reporting of the key inventory performance indicators.
Get in touch with us
Do you have questions about our Inventory management consulting?
Our team of experts offers an in-depth understanding of the complex requirements and works closely with our clients to develop customized strategies that meet their specific needs. From analysis and planning to implementation and continuous improvement, we use our extensive know-how to help companies optimize their inventory management, minimize bottlenecks and increase operational efficiency. With us, you have a reliable partner at your side, whose primary goal is to achieve maximum profitability with innovative solutions and proactive approaches.
Your contact persons
Dennis Goetjes
Partner
valantic
- Supply Chain Management
- Sales & Operations Planning
- Supply Chain Configuration
- SCM-Organisations
Gereon Küpper
Partner
valantic
- Supply chain optimization
- Chemical industry
- Digitalization
- Software selection