| Many companies are surprised when they find
excess inventory of fast moving items during a physical inventory. After getting over the
initial surprise, they shrug their shoulders and say: “these are fast moving items
and they should sell.” What they fail to realize is that even though fast moving
items will sell, they carry unnecessary storage costs that affect their bottom line
profit.
Issues resulting from having the wrong purchasing
information:
- Fast moving items resulting in excess inventory.
- Buying based on “gut feeling” rather than accurate
computer information.
- Buying “out of control.”
Even fast moving items can result in excess
inventory:
In speaking with a mid-sized distribution company CEO about
this subject, he told me that prior to the implementation of his new computer system, they
always found excess inventory of his most successful selling items when the physical
inventory was taken. When asked why this happened he said: “before we installed our
new computer system, we did not have accurate information about our inventory level.
Worrying that we would run out of stock, we ordered additional quantities of the fast
moving items, not wanting to be caught short and knowing they would sell. At physical
inventory time, we were surprised to find the excess inventory of the fast moving
items.”
After implementing a new computer system, the company
achieved excellent control across the board resulting in accurate inventory control. Using
the comprehensive forecasting module it helped them reduce their inventory to ‘just
in time’ level.
Today, rather then being afraid of running out of stock and
buying additional inventory every time the company receives large new orders, they only
buy what they need based on the computer information, and ship the items when they arrive
at the warehouse dock. They still carry a ‘comfort zone’ inventory level just in
case shipments get delayed, but their inventory level is substantially lower compared to
what they carried in the past. This has resulted in improved cash flow and bottom line
profit.
Wrong purchasing information results on buying based on
“gut feeling” rather than accurate computer information:
Not having a modern computer system with comprehensive
inventory and forecasting systems creates the ripple affect of un-necessary expenses.
Being creatures of habit, people remember their last success. Getting a very large order,
results in the expectation that the client will repeat the same order again, so the
inventory gets replenished.
This is a misconception since the client’s economic
situation might change, and they might not repeat the past buying trend. An additional
factor people fail to realize is that when items reach their maturity, the sales will
decline.
Having a comprehensive forecasting system, new inventory
will be replenished based on the following factors: - Current inventory level and its low
order point. - Item maturity based its sales history. - Outstanding open orders. -
Vendors’ delivery history.
Wrong purchasing information results in buying
“out of control”
Recently, I visited a company that is a division of an
expensive knife manufacturer overseas. Having an outdated computer system, the Purchasing
Department did not have accurate information about what was in the warehouse and purchased
additional knife holders that will last them for a few years. When we walked through the
warehouse, I asked the Computer Manager how they could live with this situation. His
response was: “I have been here one year and have made drastic changes. If you think
we have a mess now, you should have seen the warehouse before I came on board.”
When I asked him if Management was considering upgrading
the computer system his response was: “I don’t know. We spent a lot of money on
a computer system that doesn’t work properly and upper Management might not be
willing to cut their losses and invest in a new system.”
Not having good inventory control and buying based
on “gut feeling” rather then accurate computer information can result in having
excess inventory that might not be sold.
Companies who say, “for many years we managed to
control our inventory the way we do it now,” fail to realize that what worked in the
past will not work in the rapid changes of today’s business environment. Selling on
the Web has changed the face of the business world. A very successful e-commerce site and
a strong sales team is a blessing that can be a “double aged sword.” Not having
the right computer infrastructure can result in the wrong buying decisions that lead to
excess inventory in the warehouse. |
