All Posts
Inventory Management / Optimisation
Inventory Management / Optimisation
5 min read

Achieving Strong Inventory Health (and the Bad Habits to Avoid at all Costs)

Adam Cavanagh
Published on:
October 29, 2020
Inventory health is one of the most important aspects of supply chain management. With valuable resources tied up in inventory stock, knowing exactly what you have and where it’s located is crucial to managing stock, avoiding accruing high carrying costs, and to shipping orders to customers efficiently and on time.

It doesn’t just come down to the inventory that you’re holding – it’s how what you’re holding is going to perform, the cost of storing it and the price of replenishing it. That’s a lot of moving parts to bring together, requiring proactive management of multiple relationships.

People matter

At every stage of the supply chain, developing these positive relationships is crucial – understanding what the client needs, ensuring your needs are being met by your suppliers and balancing up your stock and service level demands. Your team can’t do any of these if all of their time is spent shackled to spreadsheets.

Proactive planning requires people augmented by quality information. Being able to move beyond a reactive stance and focus on ‘what if?’ analysis to select the right strategies for supply chain optimization relies on the right information being communicated. This can only happen when strong relationships are in place and your team have the tools to provide them with quality insight in a timely fashion.

Knowledge matters

But having access to the right information isn’t enough on its own – it must be supported by knowledge within your team. Insight only becomes valuable when people know how to apply it. Your team need to be able to see past the numbers themselves and understand the dynamics behind the complex engine of an efficient supply chain.

It’s important to know your clients, your suppliers, your products and the fundamental numbers of your own business. With awareness of all of the elements that can have an impact on these variables, you start to develop the ability to affect them and drive profitability.

Increasing stock turn

Your stock turn is the vital statistic of your inventory health – the rate at which you turn stock is a crucial indicator of the condition of your business. Increasing your stock turn can’t be achieved at the cost of fulfilling high service levels; supply chain optimization is crucial to avoid the risk of stock outs or the dangers of tying up too much working capital in safety stocks.

Core competencies required for increasing your stock turn include:

  • Item-level forecasting
  • Getting pricing right to increase sales
  • Smart procurement through well-developed relationships
  • Diversifying product lines and eliminating inactive stock.

Inventory health is not just having the right products in the right place at the right time at the right cost. It also relies on having the right people in the right places doing the right things at the right time.

Having recapped the key ways in which you can improve inventory health, we’ll leave you with some examples of bad habits that can seriously damage it if they creep in.

Poor communication in inventory management

The relationships you put in place along the supply chain will break down without a proactive attitude towards your partners: suppliers, shippers and clients. If you team isn’t communicating well using meaningful information – rather than just top line data – they won’t be able to maintain their connections. Automating wherever possible will free up time for the more personal side of business and this human connection is what will enable rapid

Lack of visibility along the supply chain

It’s no use having the right stock in the right quantities if it’s in the wrong place at the wrong time. Your team must have an overview of every stage of the supply chain and an understanding of the interplay of those elements. They need to have a handle on the lead times – both real and promised – behind every product, as well as the wider context of the of the service level performance of your suppliers. This situation is likely to be evolving, very little is static in the current landscape so keeping track of and adjusting for changing lead times is also crucial.

Applying global replenishment policies

There is no one-size-fits-all approach that can be applied across your entire range of product lines. Having a global safety stock assumption will not work for every product – item-level forecasting is essential to avoid stock outs or tying up too much capital through overstocks.

AGR’s S&OP software can deliver all of the required capabilities to avoid ever falling into any of these bad habits. From automating much of the planning process and applying item-level sales forecasting methodologies to providing clear inventory optimization and releasing your team from laborious spreadsheet work, let us show you the impact the AGR supply chain planning software can have on your inventory health. Get in touch today to see just how much of a difference it could be making to your business.