In the previous post, we looked at the basics around the supply chain and, more specifically, we discussed how the supply chain applies to small and mid-sized businesses. In that post, we saw that a supply chain is the movement of products from suppliers down to consumers, and at the same time, the movement of information from consumers to suppliers.
We also saw that each node of the supply chain could potentially require a warehouse for inventory, largely because of the two main risks inherent to the supply chain: 1) uncertain supply from upstream, and 2) inaccurate information from downstream.
Today, we’re going to take a more in-depth look at these two flows in the supply chain to see how an Inventory Management System (IMS) can help.
1. Information flow from consumers to suppliers
Although you might not have visibility into every node of your supply chain, you do have ability to keep track of the portions of the supply chain that your business controls. And you should have a good Inventory Management System to do the following:
- Capture sales figures
- Capture customer orders
- Record accurate inventory information at each location
An Inventory Management System can take those as inputs and enhance the information flow in a couple of very important ways:
- Forecast sales demand – if you don’t know what you’re going to sell in the future, you can’t plan today
- Incorporate customer orders into your forecasted demand stream
- Consolidate all the demand from distributed locations onto your central warehouse
- View the finished good demand down to all the raw materials in a manufacturing environment
2. Product flow from suppliers to consumers
Even more important are the automatic measurements that a good Inventory Management System can do on your supply chain, allowing you to:
- Measure how reliable your suppliers are
- Measure how accurate your supplier lead times are, and how much they deviate around those lead times
- Measure how accurate your forecasts are, compared to actual sales
Once you have better information from your supply chain, both downstream and upstream, you can start to make really accurate decisions on the inventory policies at each of the nodes that you control. That enables you to:
- Calculate the most effective safety stock to hold of each item in each location. This safety stock is there to protect you from both your supply risk and your demand risk
- Balance the ideal safety stock levels with the available working capital you can actually deploy
- Drive every single purchase order towards this optimal stocking policy. Every order you place that isn’t in line with an optimal stocking policy sabotages your intentions and cuts into profits
- Highlight problems with information flow from your downstream and your upstream, so you can correct small issues before they grow into big problems
- Measure the performance over time, because you cannot manage (much less improve) what you don’t measure
If you have an Inventory Management System that doesn’t provide this kind of visibility into your supply chain, you’re hurting your business. And if you’re relying on some combination of your ERP and an inventory spreadsheet, your problems are even bigger.
Thinking about these flows of of information within your business. Do you have these levels visibility? Are you actioning insights from KPIs and getting quality, data-based forecasts that put you in the driver’s seat?
If the answer is no, or you’re not sure, you need to reconsider your process. Every day that you go without an Inventory Management System that provides these tools, you’re preventing the growth and profitability your business should have.