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Why Modern Inventory Management Matters — To Everyone In The Plant

Inventory management is one of the most pivotal areas impacted by innovation, yet one that is often overlooked and underestimated for its value when it is time to allocate funds.

Innovative technologies have touched every aspect of manufacturing — from product design to aftermarket service — creating demand for investment. When aligning budgets to projected return on investment (ROI), many plants have to make tough decisions about priorities and pick which projects merit phase-one funding. Inventory management is one of the most pivotal areas impacted by innovation, yet one that is often overlooked and underestimated for its value when it is time to allocate funds. But, pausing to recognize the significance of readily available raw resources, parts and components helps managers see why investing time and dollars in smart inventory management solutions is a critical part of keeping operations on track and on budget.

Setting Priorities

It is reasonable to expect manufacturers to fall back on a phased approach for deploying new technologies. It is rare to find the enterprise that can reinvent processes company-wide in one fell swoop. When picking starting points, though, manufacturing executives often automatically turn to the shop floor, concentrating on industrial machinery, workflows, sensor technology and machine maintenance for improvement initiatives. It’s easy to overlook the strategic role of inventory management and make the common assumption that the warehouse is just a temporary stopping point where goods wait to be shipped to customers. That is hardly the case.

When inventory management is viewed through a cash flow lens, the financial impact of slow moving SKUs, excessive safety stock, back-ordered components, stock-outs and parts shortage puts a new perspective on priorities. Too much inventory means capital is tied up unnecessarily. Lack of inventory means processes are delayed, eating away at productivity. When orders can’t ship, customers become angry, eroding loyalty and repeat sales. When service level agreements can’t be met because of missing spare parts, fines are levied and contracts revoked. It’s now easier to see why inventory should be a topic that everyone in the plant considers high priority.

Supporting Modern Assembly Demands

Advanced inventory management plays an even more important role for plants which manage a large percentage of highly configured, personalized products. Operational tactics, like “hub and spoke” design and late-stage assembly, allow manufacturers to take advantage of modular design concepts with mix and match components. Various systems of a product can be assembled and stored. Final assembly can be postponed until the actual order is received. Then, the right finishes, accessories and details can be added to the customer’s specifications. This assembly tactic is becoming increasingly common as manufacturers cope with customer expectations for specialized products. Advanced inventory solutions help the manufacturer manage this system of storing and staging partially assembled products, components and compatible add-ons.

Cross-docking is another practice in inventory and logistics which advanced IT solutions support. Cross-docking allows products which are unloaded from incoming trucks or rail cars to be automatically dispatched to the end destination — without the waste of being put in inventory and then shortly thereafter removed. By storing the products in a staging area or simply reloading them in another transportation vehicle, time and labor can be saved. In cases of less-than-truckload (LTL) shipments, cross-docking simply moves cargo from one transport vehicle directly onto another, avoiding warehousing. In some operations, a staging area can be used to sort inbound materials and store them until the customer’s outbound shipment is complete and ready to ship.

When a manufacturer makes its own components, cross docking capabilities help sync availability and demand, automatically matching the completed goods with open jobs or purchase orders that may be waiting for that component. Such tactics speed processes, streamlining activities and allowing the manufacturer to respond to customer expectations.

Using Scanners and Sensors in the Warehouse

Technology can also be used in the warehouse to improve inventory tracking, reducing errors, and speeding pick and pack processes. Barcodes, optical scanners, RFID technology and sensors with GPS tracking can all be used to help warehouse personnel find and pull products from shelves. For manufacturers with thousands of SKUs, hundreds of possible versions and multi-part kitting requirements, saving time on each order quickly adds up to major cost impact. Even more importantly, accuracy is improved, influencing customer satisfaction.

Next generation solutions can take the advanced inventory system up yet one more level. Wearable technology, voice activated systems and automatic sensor readings all help warehouse personnel concentrate on fulfillment, rather than computer tasks. Some industries even find benefit in deploying driverless forklifts operating on tracks which can quickly move through the warehouse, automatically stopping at correct bins and using robotic arms to pull products. Speed is increased, while also reducing safety issues. 

Accuracy Improves Reporting

One of the biggest benefits of improving inventory management systems is that accuracy also improves as a result. Inventory accuracy yields more accurate reporting and analytics, including predictive analytics. The ability to predict needs with confidence means managers can tighten safety stocks, reducing the amount of inventory kept on hand “just in case” and can practice “just in time” strategies which optimizes space, time and cash flow.

Accurate inventory of spare parts is also critical to aftermarket service, performing preventive maintenance and fulfilling service contracts with customers. Maintenance, whether on internal equipment or on customer-owned assets, requires inventory of replacement parts and routine consumables, like lubricants, ink, filters and belts. Errors in inventory can be disastrous. Planning the projected need for replacement parts can be enhanced by smart Data Science using purchase data to project when replacements will be needed.

In Summary

A warehouse may appear at first glance to be little more than a giant room with shelves, a storage place. In fact, with proper IT solutions, inventory management can be a strategic part of the enterprise’s cash flow strategy, and can also improve customer relationships. Inventory is a critical component of making and shipping products. It deserves priority status — and the funding to match.

Mark Humphlett is Senior Director of Industry and Solution Strategy at Infor.

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