Monday 28 May 2018

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.!

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