Controlling the flow of materials through your operation is key to maintaining a healthy bottom line. Your business is much like a bucket (inventory) with one faucet flowing in (raw materials) and another faucet flowing out (finished product) to customers. You want to control both faucets as much as possible to ensure your bucket never overflows or runs dry.
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Finding the Right FIT
To make your bucket and faucets work for you, start with the basics. Do a materials flow analysis, go back through your history, and categorize events to discover what you can improve. Leveraging the principles of FIT manufacturing can optimize your entire system and help you determine just how much inventory you need to optimize your faucet-bucket-faucet flow system.
Part of this process entails asking what elements are in your control and which ones are not. The size of your bucket and quality of your materials are within your control, but things like geopolitical uncertainty and weather issues can impact your production at a moment’s notice. Consider your inventory, history, and any variables you can account for to assess how much you need to carry to maximize your bottom line. It’s not always about cutting inventory. It’s about considering your carrying costs and balancing that with what you would lose if you had to interrupt your flow of product to customers.
Addition and Subtraction
Is it time to trim the fat or bulk up? Often, insufficient thought goes into inventory planning. A single-minded focus on cutting costs can cause business owners to reduce inventory, putting them at risk of short supply. That’s why it is important to make sure your inventory is sized right for your business.
This concept is perhaps illustrated best by comparing athletes in two different sports. A marathon runner is generally lean, while a pro football tight end is stockier. The runner is not likely to do well blocking or carrying a ball against giant linemen, and the tight end will probably be less effective running a marathon. Both are athletes, and both are very fit, but they would be far less effective if they were to switch roles. Likewise, what works for you may not be the same as what works for other businesses, so it’s crucial to look at as much historical data as possible to discover patterns that can allow you to more accurately forecast your inventory needs.
One of the biggest mistakes in managing inventory is actually mismanaging it. Making sure you have the right size warehouse for your inventory is only part of the equation. You also need to make sure it is well organized with like items housed together. Nothing is worse than “losing” a large shipment because it’s been incorrectly stored only to find it later when it’s no longer needed.
Eat the Frog
You’ve heard of eating the frog, right? It means tackling the worst or most difficult task of your day first instead of putting it off. In much the same way, you need to deal with inventory issues when you first encounter them instead of pushing them under the rug. Eventually, you’ll have to reckon with them, and the longer you put it off, the more likely it is to cost you in the long run. Handle obsolete products as soon as possible, even if it means taking a small loss, because waiting generally leads to big losses down the line. Overstock should be dealt with on a regular basis—quarterly or annually—to lessen the impact on your bottom line.
In the end, it’s all about balance. Keep the bucket full enough without overflowing, and your faucets will be much easier to control. If you’re wondering how you can maximize your system, reach out to the Cornerstone Consulting Organization TODAY!