Best practice of the week: 3.6 Inventory
An inventory depletion shock is coming to Western business inventories as Chinese exports have declined by over 18%. Retailers and businesses that traditionally build 20-day stock levels will run low until Chinese production returns to 100%. No one knows when that will be. How will you be able to buy or sell inventory, even when orders are shrinking?
THE CENTER’S BEST PRACTICE OF THE WEEK: 3.6 Inventory.
Definition of Inventory: “The material needed to be on hand to fulfill promises to customers.”
Types of inventory
- Materials and components
- Goods in transit
- Work in process
- Finished goods – warehoused
- Consigned goods – at distributor
- Merchandise goods – purchased to be resold
- Maintenance and repair supplies
Identification and tracking best practices
- Unique item identifiers (descriptive names, part numbers, SKUs)
- Logical, well defined, clearly labeled locations
- Inventory management software (with staff trained in it)
- Items mix
- Number of days left
- Annual inventory turnover (Cost of Goods Sold/Average Inventory)
- Inventory shrinkage rate
- Cost of Carry (Carrying cost/Total cost)
3 Good Questions (discuss in a management meeting)
- What is the cost of losing an inventory turn?
- What are our purchasing and inventory benchmarks?
- Why do we have inventory at all?
In the face of supply chain disruptions, take steps to increase sales of slow moving or perishable stock to generate more cash.