3 Common Inventory Management ‘Sins’—And How to Avoid Them
ARTICLE SUMMARY Three rules are really important in inventory management. If you don’t get them right, you won’t be able to do a lot of other things. They are: 1) Observe ABC Classification It has long been shown that 20 percent of lines account for 80 percent of revenue and margin. These are the A-lines and should be prioritised in the warehouse. The B-lines and C-lines contribute less to revenue so they should not be treated in the same way as the A-lines. 2) Forecast Demand If you fail to forecast demand, you face the following potential risks: Running out of stockExcess inventoryObsolescence expenseHidden costs. 3) Draft an Inventory Policy If you don’t have an inventory policy: 1) You won’t get consensus 2) Cause and effect will be hard to pin down 3) Systems can’t be set up 4) Comparisons will be impossible. Three rules are really important in inventory management. If you don’t get them right, you won’t be able to do a lot of other things. They are foundations in a way. Let’s examine each one in turn, likening it to commandment that shall free you from inventory-management sin. Commandment #1: Thou Shalt Observe ABC Classification It has long been shown that 20 percent of lines account for 80 percent of revenue and margin. In a Supply Chain Secrets YouTube video, Kieran Hogan says he has been in the industry pretty much his entire working life and hasn’t seen any place yet where this rule—or something close to it— doesn’t apply. An example from a company that turned to Kieran for help in cutting its costs and streamlining its warehousing operations will aid in illustrating this maxim. Let’s call it Company Z. Company Z has a total of 7,029 lines with a turnover of about $51 million (see diagram above). We can break these down as follows: 1) A-lines—Turnover $41m (80 percent of total turnover). Number of lines 1,125. Percentage of lines 16% 2) B-lines—Turnover $7.69m (15 percent of total). Number of lines 1,825. Percentage of lines 26% 3) C-lines—Turnover $2.5m (5 percent of total). Number of lines 4,052. Percentage of lines 58%. As we work down the lines we see an ever-decreasing contribution to revenue. So if you want to know where to go, where the effort belongs, it’s obviously the A lines. Let’s look at an example. Imagine you are a racehorse owner and have...
Read MoreThe Common Mistakes in Inventory
What are the things that people get wrong in inventory? Deborah Dull, Supply Chain Expert, takes us to the three areas we often get wrong or forget. Forecast?????? Watch this video to learn more: Editor’s Note: This post was originally published on September 9, 2020, under the title “Things People Get Wrong with Inventory— Deborah Dull“ on Logistics Bureau’s website. Related articles on this topic have appeared throughout our websites, why not check them out? Robobyrne: Sins In Inventory Management Supply Chain Secrets: Why Supply Chain Inventory Should Matter to the Finance Pros Benchmarking Success: 5 Reasons to Care About Great Inventory Management Dawson Consulting: 5 Inventory Management Ills that Drive up Supply Chain Costs Best Regards,Rob O’ByrneEmail: robyrne@logisticsbureau.comPhone: +61 417 417...
Read MoreWhy Large Companies Increasingly Opt for 4PL Services
SUMMARY: Because 4PL providers handle a company’s entire chain, including challenges that are thrown up by advances in technology, they are increasingly being favoured over third-party logistics (3PL) providers, especially by big companies with complex supply chains. In its simplest form, fourth-party logistics is a model in which manufacturers hand over the entirety of the organisation and oversight of their supply chain to a 4PL provider. By contrast, the third-party logistics model is where a manufacturer retains oversight of its supply chain but outsources such processes as warehousing, shipping, packing, and distribution to a 3PL provider. When the COVID-19 pandemic began wreaking havoc in global supply chains, smaller companies turned to 3PL providers for help. Bigger companies with complex global supply chains, however, realised they needed sophisticated digital technologies and streamlined supply chain processes offered by 4PL providers to help them ride out the storm. The concept of fourth-party logistics has existed for some time but only truly began evolving with the arrival of Industry 4.0—the digitisation of manufacturing. Because 4PL providers handle a company’s entire chain, including challenges that are thrown up by advances in technology, they are increasingly being favoured over third-party logistics (3PL) providers, especially by big companies with complex supply chains. The Differences between 4PL and 3PL It will be helpful at this stage to determine the differences between 4PL and 3PL. The terms are often mixed up and some firms claim to be 4PL providers when in fact they only provide 3PL services. What is 4PL? In its simplest form, fourth-party logistics is a model in which manufacturers hand over the entirety of the organisation and oversight of their supply chain to a 4PL provider. What is 3PL? The third-party logistics model is where a manufacturer retains oversight of its supply chain but outsources processes such as warehousing, shipping, packing, and distribution to a 3PL provider. The key difference between the two can perhaps be explained in the following example: A 3PL provider working with a paint manufacturer may package and store products as well as transport them to retailers and/or customers. Unlike a 4PL, however, it won’t manage the paint maker’s entire supply chain. There are, of course, some other important differences between the two types of providers: 4PL is, in general, better suited for medium-to-large businesses, while 3PL is more suited to small-to-medium businesses.4PL companies operate at the optimisation and collaboration level...
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