Managing Inventory with a holistic approach in Small,Emerging Organization

In most of the organization, Inventory is a concern for the business head.

When we say inventory, it consists of Raw Material *+ Work in Process (WIP)+ Finished Goods Inventory.

* It includes raw material used in product + consumables + spares for equipment also.

Why inventory is a concern ?:

1. Holding  and funding cost of stock is a burden on working capital as this could be used for something else
2. High  inventory occupies more space, need more handling and people deployment
3. Despite having high inventory, delivery actualization is not met on time, holding inventory adds fuel to the inventory cost, in turn, manufacturing cost

From a basic understanding of waste from a lean perspective, inventory is waste, and it is only a symptom. Inventory cannot be controlled or reduced at symptoms level as the inefficiency of all the manufacturing, supply chain, and order procurement process and effectiveness impact the inventory level.

Hence if you want to reduce or control inventory significantly, the causes have to be managed with a holistic approach. It calls for strategic as well as tactic management.

Given the factors affecting the inventory either in RM stage or WIP stage or FG stage.

Depending upon the industry, the factors may vary a little bit, but with our experience in many manufacturing industries, the following significant factors to be revisited for better inventory management.

1.Manufacturing factors
2.Engineering factors
3.Supply chain factors
4.Customer factors
5.Internal System factors

1. Manufacturing factors :

Most of the time, the WIP inventory primarily based on the lot size, changeover time, machine/plant capacity, reliability of machine/ plant equipment, the overall flexibility of the resources and the capacity imbalance among the process concerning customer's order pace or takt time.

when you want to reduce or control WIP, the above factors have to be revisited and re-engineered.

2.Engineering factors :

It includes the no of parts in the components, standardization among the parts and modular systems, Processes involved in manufacturing those parts and the stages involved in manufacturing either internal or external sources and so on

3.Supply Chain Factors :

This factor is more of the strategic intent of the organization on the supply chain design. It includes the no of the vendors for each part, their location, pricing factors, lead-time to supply, the reliability of the vendor base and so on

4. Customer Factors :

It is more of an external driven. However, management has a choice to drive. It includes the customer profile either tier1, tier2 or OEM, the location of the customer, demand pattern, and forecasting accuracy, no of products or product lines, varieties, and volume in each variety. Those factors govern the inventory of RM+WIP+FG 

5. Internal system Factors :

Irrespective of external factors and industry type, the discipline, and internal management processes govern the inventory to some extent. It includes Norm fixation for each commodity or part wise, budgeting, buyer accountability fixing, regular reviews, and management communication system among the team.



Inventory control without affecting the customer's order delivery is a continuous management effort and calls for a holistic approach.!

Typical symptoms of poor management practices in (SME) Organizations?

Whether small, emerging medium  or large size organization, most of them have common  macro-level challenges like

1. Improving profitability
2. Sustaining the growth & Future fit
3. People Engagement towards growth

However, small and emerging organizations have other typical challenges apart from the macro level challenges. Those challenges arise due to lack of proper management practices and business / functional processes.

Let us list down some of the symptoms of poor management practices or processes that result in mediocre performance or survival challenges.

1. Struggle to meet the given delivery schedule on time and qty. This will be regular scenario every month
2. There is no structured planning on customer's orders. Most of the time, serving the customer based on the urgency of the customer on a daily / weekly basis.'
3. One of the complaints or frequently listened word (FLW) is " our planning person is not effective, or are planning is very difficult in our industries.
3. Inventory (RM+WIP+FG) accounts for more than a monthly requirement, still manufacturing lines come to a halt for want of material
4. Rework / segregation is part of daily activities  and those  are considered as  essential activities for delivery
5. For any quality problems, quality executive or quality manager  is expected to own and solve it
6. Quality is ensured through Inspection 
7. Making the operators to run the machines. Checking the quality aspects and taking actions are considered as idealistic and impossible
8.A permanent imbalance between feeder shop and final assy line. Neither aware of the imbalance nor the actions to improve
9. Typically the first week would be low production achievement and gradually increased to last week. During month end, all are busy.
10. Sometimes, previous month billing execution would continue even after first 5~7 days of the month and this continues forever
11.No clarity and communication about monthly billing/production target and actual at any point of date. That information restricted to the senior management team only
12 No performance drive on improving business / functional deliverables.
13.No structured reviews mechanism between the business head and the next level
14 Functionally I am right; but as an organization, we fail mentality across the level 
15 No Monthly business performance review by the business head
16 ERP system is either tried  or hold  for correction
17.Thinking that  ERP system will solve all our today's communication issues
18 No structured  HR policy on recruitment and compensation
19. New product development is given least priority. No structured cross-functional team reviews
20. No time for a celebration of small success and always  firefighting mode to serve the customer

The point is to relook at your organizational symptoms and work on eliminating or reducing the intense to prosper!

Why need to elevate the operator's role in SME organization?

In the entire value chain, most of the value addition happens in shopfloor while converting the input into output. Mostly value addition is being done by the operators. 

Some of the common complaints or problems faced by the management team are

1. Difficult to source the skilled operator 
2. Cost of operators is increasing 
3. Operators not  staying for long 
4. Rejections/reworks are more and being identified by the Quality inspectors before despatch

Even though skill gap, supply vs. demand of skilled people are external to the organization, some of the factors are being governed by the organization, and if the organization focus more on those factors, the above problems can be managed well.

some of the problems like cost/quality issues/retention are all influenced by the internal environment, culture and the management related.

For example, driving efficiency and bringing down the cost of engaging operators is management driven. One of the pitfalls we observe in most of the organization is the defining the roles and responsibility of the operator from day one. Operators are being recruited as the person responsible for operating the equipment only. He is expected only to perform loading and unloading the components. Quality of the output is not expected out of him, and there are other agencies or inspectors are in charge of the quality control of the product produced by the operators. 

Also, the operators are not encouraged to keep the workplace right regarding housekeeping and checking some of the basic equipment parameters on a daily basis.

A shift is required to position the operators as the complete in charge of production output as per standard both on quality and efficiency. He has to be trained and instructed from day 1 as complete in charge of his workplace.

Benefits of redefining or elevating the role of the operator:

1. Engagement and ownership increase as human beings expect more challenges, responsibilities, and appreciation.
2. It is easy to improve the quality when the issues are detected and corrected at SOURCE and by the PRODUCER than by any other person, at the remote location and time period.
3.when the efficiency increases, cost of operation comes down

The point is to elevate the role of operators to reap the benefit of reducing the operations cost and increasing the engagement!

which is one performance measure (KPI) indicating your organizational strength?

As there are many methodologies and key performance metrics (KPI)  to assess the organization strength. In fact, no one measure does not indicate the complete picture of the organization.

However, as a business head, if you want to gauge quickly about your organizational capability, people working culture, communication process and likely future prospects of the business, one key performance indicator will show you the strength of the organization.

That is " Delivery Actualization"  or "Customer order fulfillment on time."

Given the order position, if your organization meets  "Delivery commitment 100 % every time and that too on time, then we can presume, the organization is built on people and process strength.

why we insist this measure is dipstick measurement to assess the organization strength :

Irrespective of each functional efficiency, only when there is a cohesive team, business process and daily management practices, and capability, then the organization can deliver on time with 100 % actualization. This KPI  indirectly measures the organizational strength.

Relook at your organizational performance on order fulfillment for last one year, and you can relatively understand your organization's strength!