Remove Inventory by 'Tearing Down the Walls'

Every distribution and manufacturing organization is faced with the responsibility of maintaining an inventory. However, there has been tremendous focus in the past decade on inventory and removing as much of it as possible from operations. Within concepts such as supply chain management (SCM) and enterprise resource management (ERP), the objective is the same: increase productivity and reduce inventory. To state the obvious, inventory costs money. It takes up space, it must be moved often, it must be accounted for, it takes on many different forms, and most importantly, it ties up precious cash reserves.

As business owners, we know we must deal with inventory. But, how much is right for your business? This is the million-dollar question. Many manufacturing techniques such as just-in-time (JIT) and make-to-order can certainly help. Distribution approaches like drop-ship and cross-docking also aid in the reduction of inventory. But, can the need to maintain an inventory really be eliminated? Should it be?

Tear ‘Em Down
Inventory has a place in just about every business operation. Most organizations have many groups/individuals who play specific roles in managing the flow of inventory. Planners and analysts start the process, then buyers and procurement clerks get involved. Transportation and logistics staffers get the ball rolling. The warehousing department acts as "gatekeeper" for the inventory and lastly, customer service finishes the process by gathering the sales-order demands. The process repeats itself over and over again.

Each of these operating functions has specific goals it is striving for. Usually, the goal which management pushes for most is optimized performance, achieved by targeting and measuring the independent elements involved in inventory management. The staff works feverishly to get the best deal or maximize its own area of responsibility. All must be applauded for their efforts, but intentional or not, "walls" are formed — invisible barriers to really achieving the full potential of inventory efficiency.

In order to continue progressing toward full inventory efficiency, these walls must come down. Each action taken — whether it is a phone call, e-mail, memo, fax or other type of communication — needs critical review for its overall value to the organization. Each of these steps contains an element of risk for error, expends precious manpower, and is costly in terms of elapsed time. And we all know time is money.

An Integrated Approach
It's common to hear about integrated systems, but what about integrated operations processing? This means integrate the functions of inventory planning, procurement, transportation/logistics, and customer service into a close-knit operation. Let these departments create a cross-functional team. If all the disciplines are responsible for serving customers' needs at the highest level and lowest cost, all will have a common goal. By working together and understanding and sharing each other's difficulties and challenges, more informed decisions will be made.

The real key is communication. By removing the non-value-added steps in the inventory planning process, faster and more accurate decisions will result. These decisions yield lower inventories – having the right products in the right quantities available when and where customers want them. Each member of the team is empowered to make decisions with knowledge of the entire process. These decisions occur often without phone calls, delays waiting for responses, or simple hand-offs into someone's queue without anyone following up on such requests.

The Benefits
What can an integrated team approach to inventory planning provide? Here are a few fundamental benefits:

  • Eliminating the "batch-and-send" to someone else for action process.
  • Increasing the number of inventory planning decisions made by having input from all operating areas simultaneously.
  • Reducing valueless changes to previous plans.
  • Processing customer requests with complete visibility of their impact on the overall supply chain.
  • Creating experts who understand the complete fulfillment process from supplier to customer.
  • Eliminating costs of expediting materials due to voids in the planning process.
  • Increasing productivity by having a team devoted to a common goal.
Whether your organization has many departments all handling a piece of the process today, or you have just three or four individuals who are responsible, create the team and remove the barriers. Common goals with a cross-functional team will yield the benefits of lower inventories through more efficient planning – and more satisfied customers.