Many companies are well aware of the importance of inventory management, because inventory management is related to the prosperity of the entire enterprise. Inventory management is the management of the quantity of goods in the warehousing process. So, what are the inventory management strategies? Let's discuss it together.
What are the inventory management strategies? These three points are indispensable!
1. Inventory management metrics
Management starts with measurement. There are three important metrics in inventory management: average inventory value, time to supply and inventory turnover rate.
1. Average inventory value: generally refers to the average proportion of funds occupied by inventory in a certain period. Generally speaking, manufacturing companies account for about 25%, while wholesale and retail businesses may account for about 75%. Managers can evaluate whether this indicator of their own company is too high or too low in both vertical and horizontal directions based on historical data or the average level of the industry. However, a factor that cannot be ignored is market demand, that is, the quality of inventory management must be considered from the perspective of meeting market demand. For this reason, the following two indicators may be more important.
2. Available supply time: that is, the average inventory value divided by the demand value per unit time (such as weekly, monthly, etc.) in the corresponding time period, which refers to how long the existing inventory can meet the demand; each material can also be used separately The average inventory is divided by the demand per unit time in the corresponding time period. In some cases, the latter is more practical.
3. Inventory turnover rate: The slower the inventory turnover, the greater the amount of funds occupied by the inventory, and a large amount of various expenses such as storage will also occur; and vice versa. At the same time, the inventory turnover rate also has a great impact on the capital turnover rate index that is vital to the business operation. However, it is difficult to generalize how inventory turnover is the best. Many Western manufacturing companies have 6 to 7 times a year, while some Japanese companies can reach as many as 40 times a year, and some companies in China only turn around twice a year.
Second, the placement of inventory
The basic requirements for material storage are scientific placement, quantitative preparation, constant quality, and elimination of errors. Specific to machinery manufacturing companies, there are differences between the placement methods for standard work in progress and finished products.
1. Placement of standard work in process. Standard products refer to raw materials and work-in-processes that are often available in inventory and are readily available. Obviously, standard products mostly refer to various levels of semi-finished products, which can be processed or assembled into special products required by users. After an order is received, the length of the supply cycle depends on the production cycle of special products required by the user from the standard products in the inventory, and the length of the production cycle is closely related to the placement of the standard products.
2. The placement of the finished product. The placement of finished products is an important issue in distribution management. There are two basic options: forward placement and back placement. Forward placement refers to the storage of finished products in warehouses or distribution centers close to users, or at wholesalers or retailers. Backward placement refers to storing finished products in the manufacturer's warehouse or not keeping finished products inventory.
Placing forward is conducive to fast delivery and reduces transportation costs. The first advantage is obvious, because the closer the finished product is placed to the user, the shorter the response time required by the user; the latter advantage is that in the forward placement, the product is not scattered to each user after leaving the factory, but is shipped together. To several distribution centers, so that the freight can be calculated with the whole vehicle instead of the LTL fee. Especially in the case of a large variety of enterprise products, if they are sent to each user separately, they may all need to be charged at LTL, but if they are sent to a distribution center, the distribution center can send products from different factories to the same user. Collect them and deliver them in whole vehicles. This front-end advantage is best reflected in chain stores, supermarkets and other wholesale and retail industries.
In the global production operation of enterprises, it has become an increasingly important issue to set up distribution centers for various products produced in multiple production bases in different countries and regions to accelerate global sales. But the forward placement may not be applicable in some situations. For example, when the competitive strategy is to focus on product customization and diversification, you should not hold a large amount of inventory. Another example: the demand in a region may be high in a certain month and low in a certain month, and this change is difficult to accurately predict. In this case, if the demand varieties of several regions are concentrated in the back central warehouse, Instead of placing them in various regions, the different demands between regions will have a complementary effect, which will reduce the uncertainty of total demand and reduce the necessary total inventory (that is, the "risk absorption" effect).
Three, the basic strategy of reducing inventory
Most companies are facing inventory risk issues. Inventory materials must occupy funds and space, and send personnel to maintain them, resulting in inventory costs. Excessive inventory can easily lead to a backlog, which not only takes up a lot of funds and spends too much storage costs. If the required inventory funds are supported by borrowing, it will also increase the interest burden on the enterprise. At the same time, long-term storage will cause items to become obsolete due to damage, deterioration or accidents, and lose their original value and use value. If the inventory is too small, it is easy to cause shortages, which will not only affect the normal production, but also lose sales opportunities, lose customers, and reduce corporate profits. Therefore, how to reduce the inventory risk and keep the inventory at a reasonable level is a problem that every enterprise is very concerned about. The enterprise is always seeking ways to reduce inventory. Here only from the perspective of the role of inventory, discuss the basic strategy and specific measures to reduce inventory.
1. Reduce turnover inventory strategy. The basic approach is to reduce inventory batches, while taking some specific measures to find ways to reduce ordering costs or job exchange costs. The more successful experience in this regard is the "quick mold change method" of Japanese companies, which uses one-person multiple machines, group technology and flexible manufacturing technology, that is, to maximize production batches and reduce job exchange by using "similarity" as much as possible. In addition, you can also try to use common parts to reduce inventory.
2. Reduce the inventory in transit strategy. The variables that affect inventory in transit are demand and production-distribution cycle. Since it is difficult for companies to control demand, the basic strategy for reducing this inventory is to shorten the production-distribution cycle. One of the specific measures that can be taken is the advancement of standard product inventory as described above. The second measure is to choose more reliable suppliers and transporters to minimize the transportation and storage time between different storage locations. You can also use the computer management information system to reduce the delay in information transmission, and the resulting increase in delay time. In addition, you can reduce the inventory in transit by reducing the batch size.
3. Reduce inventory adjustment strategies. The basic strategy of reducing inventory is to make the production speed consistent with changes in demand. One way of thinking is to try to "level out" fluctuations in demand and develop new products in a targeted manner so that the "peaks" and "valleys" of different products are staggered to compensate each other; the other is to use price discounts in the off-season. Transfer demand for promotional activities.
4. Reduce safety stock strategy. Safety stock is a kind of extra stock held. It is used as a buffer to compensate the demand generated during the order lead time when the actual demand exceeds the expected demand or the lead time exceeds the expected lead time. Its purpose is to prevent uncertainties. (Such as failure to arrive on time, the quality of the purchased goods does not meet the requirements or a large number of sudden orders, etc.) The impact on production and sales. The specific strategy for reducing this inventory is to make the order time as close to the demand time as possible and the order quantity as close to the demand as possible. There are 4 measures available:
(1) Improve demand forecasting. The more accurate the forecast, the smaller the possibility of unexpected demand. Therefore, some methods can be adopted to encourage users to order in advance.
(2) Shorten the order cycle and production cycle. The shorter the period, the less likely an accident will occur during that period.
(3) Reduce supply instability. One way is to let the supplier know the company’s production plan so as to make arrangements as soon as possible; the other way is to improve on-site management and reduce the number of scrap or repaired products, thereby reducing the inability to supply on time and in quantity due to this reason; One way is to strengthen preventive maintenance of equipment to reduce supply interruptions or delays caused by equipment failures.
(4) Increase the flexibility of equipment and personnel. This can be achieved by buffering production and operation capabilities and training versatile personnel. This method is more used in non-manufacturing industries, because for non-manufacturing industries, services cannot be stored in advance.
This article is reproduced from snow beast software
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