Inventory Replenishment Management Key Concepts

The Goal of Inventory Management: Balancing Material Availability without Inhibiting Cash Flow
All businesses that manage physical goods must effectively manage inventory. Inventory managers are saddled with the task of maintaining just enough material in stock to meet demand and not a unit more. Poor inventory management directly inhibits operational success. Carrying too few items can create dissatisfied customers, while carrying too many items can severely hinder cash flow, inhibiting the business’s ability to keep its doors open.

The complexity of a business’s operations affects the complexity of the inventory management process. Inventory management is a task that may require significant time, personnel, and other resources to get right. This is all the more true if the company’s goal is to receive supply “just in time” (JIT), or only at the exact moment items are needed.

JIT success requires the consideration of many factors, such as:

    • Demand forecasts
    • Customer expectations on lead time
    • Supplier performance
    • Production timelines
    • Quality assurance
    • Much more…

Each of these factors must be continually monitored and analyzed in order to effectively tailor inventory levels to ever-changing conditions. For most sites this is an uphill battle. Not only are there often several consumption schedules to monitor, but replenishment and consumption activities are often performed by an array of cross-functional roles:

      • Planners
      • Production Schedulers
      • Buyers
      • Sourcing Managers
      • Material Coordinators
      • Material Handlers
      • Operations Managers
      • Functional Supervisors
      • Production Employees
      • Etc…

The activities of these roles affects material flow and cash flow. Because of that, clearly defined processes, proper tools and effective training are vital for successful inventory management.

3 Phases of Inventory Management
The results of successful inventory management are that customers have items available as needed and suppliers only replenish items to customer demand. Successful inventory managers recognize that inventory management is ultimately focused on the management of consumption and replenishment in order to meet customer demand without hindering cash flow. This requires attention to three phases of inventory management: receiving, consumption and replenishment.

      1. Receiving: To ensure that inventory is always available, you must replenish the goods that are consumed. Replenishment orders may come from external or internal sources. Wherever they come from, when new materials arrive they must be moved to available inventory expeditiously. This requires that items are physically and financially received.
        Unfortunately, a common – but unnecessary – practice is to inspect items as part of the receiving process. Typically, this because suppliers aren’t trusted. Remember, the supplier’s job is to send quality items. If the supplier cannot be trusted, then that is a vitally important issue that must be addressed: either fix the supplier or replace them! Item inspection adds significantly more time and money to the total cost of inventory.
      2. Consumption: As the manufacturing process occurs, items are continuously being consumed. They are either directly consumed by the customer or consumed internally. Depending on the specific inventory item consumption intervals can happen many times a month or several times an hour. Parts will trickle out of inventory as they are consumed, and when necessary, a bulk batch will be dropped in to refill what was used. The consumption of inventory happens more frequently than replenishment, but at smaller quantities. Consumption is driven by demand which can be very predictable or extremely volatile. Obviously, it is far easier manage predictable demand, so it’s advantageous to reduce volatility if you can. If you can’t, then you must reduce volatility’s impact.
      3. Replenishment: Once items have been consumed, they must be replenished. The objective of replenishment is to get the right items to the right place, at the right time. There are 3 key types of replenishment orders. While, manufacturing orders are generated for internal suppliers, purchase orders are generated for external suppliers. At a minimum, every replenishment order requires the item, the item quantity, the supplier, and the due date. Purchase orders additionally require a valid price. Deceptively simple, an optimized replenishment process requires continuous access to accurate and timely item information, reliable suppliers, and well defined procedures to prevent a breakdown in the supply of needed inventory.
2019-07-29T08:03:32-04:00July 29th, 2019|Categories: Inventory Management, Lead Time Reduction, Lean Manufacturing, Supply Chain|

About the Author:

Aaron is the Marketing Director at Falcon Fastening Solutions, Inc. He is focused on sharing Falcon's unique approach to fastening and class C production component supply chain solutions with equipment manufacturers.

Fasteners and Class C Component Supply

Falcon supplies fasteners and inventory management services to manufacturers in North and South Carolina, Kentucky, and the surrounding areas.

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