9 questions to diagnose your inventory health

As most executives know, identifying the right levels is vital to their organization since it not only controls costs but also serves as a key indicator of how their company's overall health.

So my question to you is….Do you know the Inventory Health of your company?

 

Take a moment to review and answer the questions below.  These questions are designed to assess the effectiveness of inventory reduction processes as well as the sophistication and extent of those efforts.  The answer(s) or lack of answers could be a major eye-opener!

1. Can you able to break down your operating inventory into the three major categories when reporting levels—safety, replenishment and excess or obsolete stock?

This breakdown makes it easier to make sound decisions about appropriate levels for each of these three areas.

2. How does your company calculate your safety stock levels?

Efficient operations use a standard statistical formula that looks at historical data for individual products.

3. Do you recalculate safety stock levels on a regular basis to ensure they are up to date?

A good rule of thumb is to review/update your calculations every 3-6 months.

 

4. Who decides key inventory-related policies such as determining the right balance between customer service and cost-effective product inventory levels?

Many decisions about inventory levels are strategically important. Do you have the RIGHT person making the decisions?

5. Who & What determines the optimal frequency for producing and/or ordering products?

Once again, do you have the RIGHT person in charge?

6. How do you determine the frequency for ordering inventory?

Do you have the systems in place that provide useful data?

7. Is the optimal reorder frequency reviewed and possibly recalculated on a regular basis as part of a continuous improvement process?

Once you've reduced inventories, you'll have to put new processes in place to lower them even more over time.

8. Do you have regular visibility into excess and obsolete stock, and is it linked to targeted action plans to sell off or reduce this inventory?

Inventory leaders establish processes to determine why excesses occur and have a action plan when they do occur.  Don’t let the fear of the write-offs lead to large a buildup obsolete inventory.

9. Do you apply the above practices to all parts of your inventory (finished goods, raw material, works in process and spare parts) and in all organizational entities?

One of the most common mistakes made by some companies is that they only look at small fraction of their inventory.  You must answer these questions and possibly more when you operate a manufacturing facility. 

After answering all 9 questions, the diagnosis of your inventory health sets your company up for significant opportunities to improve expense and asset effectiveness and creates potential for capturing missed top-line sales. 

About Joe Crews & JIT Solutions Group, LLC

In 2006 I formed what has now grown to become JIT Solutions Group.  Our goal is to educate businesses of sizes and in all industries on how to manage an Accurate & Cost Efficient Inventory.  We are based in Winston-Salem, North Carolina but that doesn’t prevent us from educating businesses from across the county on the BEST Inventory Management practices.

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If you have any questions or would like more information about our services, please visit, www.jitsolutionsgroup.com or Connect with me here on LinkedIn.