The optimal stock level is essential for the operational efficiency of a company.  Because of this critical role, it also opens up many opportunities to waste money. While too high an inventory leads to the commitment of working capital and increased costs or depreciation, wrong or too low inventory can lead to a standstill of the subsequent operational areas. It is irrelevant which industry or size of the company is involved. The question that arises is: How can this fragile corporate element be managed correctly?

and in the beginning was the transparency

As with any well-structured management action, the first step is to get an overview of the current situation. Without a status quo, there is no benchmark. Without benchmark, there is no way to measure improvement. In the case of inventory, the standard for achieving such transparency is the ABC / XYZ analysis. It is widely used and divides articles by frequency of demand (ABC) and seasonality of consumption (XYZ). The ABC / XYZ analysis is only half the story. Without the comparison of the demand situation to the actual stock, no meaningful statement about the total stock volume is possible. This comparison between demand and stock is generated by adding the RST criteria to the analysis, which shows the actual storage time of the individual articles in the warehouse. The intersection of the three dimensions mentioned above provides transparency about requirements, stocks and turnover, from which optimization and management measures can be derived. What to do with the newly won wisdom?

Individual handling of the segments

There are no hard and fast rules to draw the right conclusions from needs and ranges. There are no standard measures that can be “pulled” over all segments. Target ranges must be set for each segment, and possibly even for the product group within these segments. The reference points ​​of the optimal ratio are furthermore industry- as well as company-dependent. “Fast moving consumer goods” (FMCG) in the food trade require different target values ​​than raw material in the manufacturing industry. There are also influencing factors such as series vs. single-item production or even operational models such as “make to stock” (MTS) or “make to order” (MTO). The requirements of the areas connected to the warehouse (customer, market, production, service, etc.) vary, which means that the supply of material and goods has to meet different demands. Consequently, findings, goals and measures must be derived specifically from the company and its situation. Internal and external empirical values, which serve as guidelines for the managed efforts, can be helpful.

The path of implementation is of trial and tribulation

Unfortunately, such efforts are no fast-selling item. Not only does it usually require different users such as sales, purchasing or planning, without a continuous PDCA cycle (“Plan-Do-Check-Act”) framed improvements cannot be maintained or revised. The stabilization of the improvement (eg scheduling guidelines) and the constant adaptation to new requirements are then also the focus of the continuous improvement process.

And if it works?

If the improvement is successful, working capital and storage costs will be reduced. It is not uncommon for planned investments to be postponed for a few years and the money to be used for value-adding activities. Lack of out-of-stock situations allow a constant and balanced production or availability, which in most cases leads to satisfied customers and a stabilization or expansion of sales.

Finally, it must be said that well-managed inventory is also a great way to make a business more efficient and profitable!