Inventory management refers to the process of management of inventory or finished goods within the organization. It is a very simple concept that says, ‘don’t have too much inventory and don’t have too little’. The need to inventory management arises due to various factors, including Capacity constraints, Quality issues, Layout, Big batches & High changeover time, Minimum order quantity, Ordering & replenishment system, High demand variation due to seasonality or more. And, since significant extra cost may be involved in straying goods above and below the optimal range, careful inventory management can make a huge difference in the profitability of a business.
Inventories are generally produced and stored according to the current demand and supply expectations of the market and any excess in inventories weakens business competitiveness by increasing operating costs & decreasing the margins. Therefore, it is crucial to have the right balance of inventory in the organization and the managers must keep a check on it.
Kaizen (literally meaning, incremental improvement) is an important inventory management tool employed by the organizations. It is applied to the workplace aiming at continual improvement within the organization, including employees at all levels. It also aims at eliminating wastes (Japanese term ‘Muda’) from all areas of your business. There are seven types of Muda or waste including one from overproducing, waste of time, waste from transporting, waste from over processing, waste from inventory, waste from motion, and waste from producing defects and rework.
Rib Consulting, one of the best TPM consultants in India provides effective Kaizen Inventory models that might help us understand the actual reasons behind inventory gaps.
The consultancy suggests that ‘due to excess or low inventory, there can be the substantial increase in costs or can lead to sales losses due to non-availability of right inventory at right time. Thus, It becomes very crucial to have Optimum inventory levels based on Production capacity, Market demand, Production Lead time, Supply Variations, Demand variations and Space availability’.
The ace consultancy works on 3 key strategies for inventory management. They are mentioned below:
- Planning Strategy: It includes the analysis of SKU (Stock Keeping Unit i.e. a distinct type of item for sale such as a product or service of which all attributes (associated with the item type) are distinguished from other item types) wise sales to decide Make to Stock and Make to Order items. It also includes the analysis of Sales growth trend, forecasts, lead time to produce and scientific calculation of supply & demand variations based on the desired service levels.
- Capacity Planning Strategy: This step ensures effective capacity utilization and includes the analysis of the existing capacities, Downtimes, Changeover times, Rejection & minimum batches for each Stock-keeping unit to meet the demands.
- Execution Planning Strategy: This planning strategy ensures that the right items are restocked at the right time based on a priority of item and stock levels.
Rib Consulting is an ace consultancy and this is widely reported by their clients. The consultancy also claims that ‘Our clients with Kaizen Inventory Management has been able to reduce their inventory levels by 30-40%’.