Inventory management and planning are critical to the profitability of your organization. Businesses can enhance their purchasing and manufacturing processes, cash flow, and profitability by employing key performance indicators (KPIs) to manage and track inventory. KPIs also allow businesses of all sizes to assess the impact of their daily activities.
We recommend using the following Five KPIs in a systematic approach to optimize your inventory planning and management process!
1. Inventory Management Analysis
- The first critical KPI is a detailed review of the inventory management process to determine its current scenario.
- By observing how the various process units interact, you may determine whether there is a definite division of tasks or overlap in duties.
- These defects should be ranked based on how they affect the process, and improvements should be recommended.
- The evaluation would benefit from comparing the company’s inventory management systems to those of the industry’s major competitors.
- Inform all stakeholders about the assessments’ results and suggested improvement initiatives so that they may participate in the improvement process.
2. Construct an Inventory Management Strategy
- Based on the evaluation results, an action plan should be developed.
- Inventory must be classified as raw materials, work-in-process inventory, and finished products.
- In a good action plan, each of these comment threads should have its own action plan, which is then merged to give an overall inventory plan.
- Quality control standards and operational definitions should be included in the inventory management process, especially if the company has recently experienced a merger or acquisition that has introduced new requirements.
- The first step in this procedure is to fix operational shortcomings.
3. Put the Strategy into Action
- The second process should be to put the strategy into action.
- Any modifications to the strategy must be authorized by management only when necessary.
- All stakeholders in the inventory process, including suppliers, should communicate and collaborate openly.
- It is important to define each unit’s function in the inventory process and assign duties accordingly.
- The inventory management system must be standardized so that it can be simply implemented, and work can be conveniently assigned.
4. Evaluate Performance in Relation to the Strategy
- Any inventory process action that differs from the established plan should be examined and immediately corrected.
- Inventory audits should be conducted on a regular basis to ensure that efficiency is maintained.
- Furthermore, unique key performance measures and Key Success Indicators (KPIs) should be established to evaluate the performance of each stakeholder and the organization.
- Metrics results should lead to appropriate actions.
- The expense of inventory transporting, and warehousing should be evaluated. These metrics include the percentage of total inventory value that represents the carrying cost of inventory. The percentage of total inventory value spent on storage and shipment, known as COGs (Cost of Goods), is also crucial.
5. Constantly Strive for Improvement
- To keep the inventory process efficient and make it strong enough to handle unexpected situations like supply chain disruptions, opportunities for improvement should be sorted out.
- The process should be continuously reviewed, data analytics should be improved to assure optimization of the just-in-time delivery measure, and minimum stock orders should be reduced.
- It is also necessary to investigate process irregularities and define solutions, as well as to increase employee operational expertise, collaborate with suppliers to implement operational improvement initiatives, and reduce cycle and lead times across the board.
Improving processes through the inventory management phase of your supply chain operations can have a large impact on the overall efficiency and effectiveness of your organization. Optimizing the flow of your inventory operations will help you keep better track of key trends in your inventory. This will leave you better prepared to manage this and more aspects of the inventory management phase of your supply chain.