Excess inventory is an on-going issue for many manufacturing and retail organizations, depending on the type of inventory you’re asking about; raw material? In-process? Finished goods? Inventory is nothing more than cash lying around in bins, on the floor, in back rooms, on shelves or stored in containers. Knowing what is causing your excess inventory should open the door to identifying solutions to the problem. Let’s explore a few of the conditions that may be causing your inventories to rise: Basic inventory management impact flows:
- Sales impacts Engineering/Buying
- Engineering/Buying impacts Materials Management
- Materials Management impacts Purchasing
- Purchasing impacts Manufacturing/Store inventory
Sales forecasts that are overstated have an impact on the amount of raw material, sub-assemblies, hardware and finished goods/products which has been designed by engineering or selected by a buyer, which will be quantified by Materials Management and which will be ordered by Purchasing. Sales forecasts also contribute to excess inventory of finished goods (product).
Sales order changes have the same impact as Sales forecast over-runs except it is multiplied by the material or components/product that have been changed. The change drives the use of different materials/components/product that must be ordered (and maybe expedited), while the original materials/components/product become excess in inventory. Extremely late Sales order changes can cause excess finished good inventory in manufacturing.
Engineering and buying errors or changes that take place after materials/components/product are ordered or parts manufactured, causes excess inventory for all materials/components/manufactured parts and store inventory. Manufactured parts may be excess inventory or scrap if not reworked.
In manufacturing, Materials Management is responsible for looking across all Sales orders that have been broken down into their key components by Engineering and then determining the best order quantities of the materials, components and manufactured parts to be ordered for the product. They look at existing inventory levels and the future needs for the parts and place orders with Purchasing and Manufacturing to have these items arrive at a time before they’re required. Errors in inventory counts of existing inventory can generate part/product shortages or overages. Incorrect order quantities can contribute to both shortages and excesses. Miss-handling of parts/product arrivals may cause these items to be lost until they are eventually found when physical counts are made, thus generating excesses.
Purchasing orders the parts/product from outside sources. Situations that can contribute to excess inventory may be the wrong part/product being ordered, incorrect quantities are ordered, and where the arrival dates are incorrect. These conditions can cause the need to expedite additional parts/product in order to correct the mistakes, and cause increases in inventory.
The more collaborative the organizations are working together, the lower the risk of making errors that can cause rising inventories.
Look at our library of more Tips & Thoughts here!
If you have a question you would like us to address, let us know at contact@CollaborationHQ.com