Wednesday, March 12, 2014

Inventory Management Basics

I have a couple of blog posts in draft form that I'm going to try to publish over the next few weeks months years, but I wanted to start with a quick article about Inventory Management basics -- the things you do outside of the electronic system that will determine whether your overall supply chain or inventory system is successful.  Most of the blog posts that I'm planning to write will be related to best practices that I've learned through the development and implementation of OpenBoxes or that I've read about in blogs or books.

One of my next articles will be about open-source ERP systems.  I've evaluated most of the open-source systems (as well as a bunch of commercial systems) during the past few years and wanted to at least provide a list of these systems to help give people a sense of what's out there.  I won't be able to write reviews for all of them (at least not in the short-term) but I'll try to provide enough background to help people in their search for the right system.

But before we get to those articles, I wanted to share an awesome best practices guide published by the folks at Clearly Inventory, a web-based inventory management system that is simple to use and relatively inexpensive.  I have no affiliation with Clearly Inventory, other than I've evaluated in the past, but I have a special place in my heart for this company because they seem to "get it".

The guide highlights the most important aspects of managing your inventory and walks you through what you need to do BEFORE you adopt an inventory management system.

http://www.clearlyinventory.com/inventory-basics

The guide is pretty simple and straightforward (maybe even obvious to most).  But the reason this guide is so remarkable to me is because it is one of the only places on the web (that I've found) where a company trying to sell an inventory management system has provided publicly accessible instructions for how to improve the processes around the electronic system.  Most of the major commercial brands publish these awful marketing blurbs about how to "synergize your supply chain with our cloud-based ERP offering" but they never give any concrete advice on how to improve your supply chain processes to effectively use their system.  Either they don't know or they want you to pay for that advice.  In either case, that's not a company I want to do business with.

The main point is that you should implement sound processes before you select a system.  In fact, the system you choose should complement the business processes you've adopted, not require you to completely rewrite all of your operation manuals.

I've been developing software for over 13 years and while I'm an advocate of using software to solve problems, I feel like the electronic system is always just a small part of the solution.  And in reality it's usually part of the problem because the people adopting the system believe that it will magically fix all of their problems.  A new system should not be adopted because you think it will fix all of your supply chain woes.  It should be used in concert with your current business practices to improve processes that you know are deficient because you've analyzed them.  If you don't think you've solved your business process problems yet, do that before looking for a new system.  Your Excel spreadsheet is probably good enough until you fix the human/process problems -- those human/process problems become much bigger when you adopt the wrong system (more on that in another post).

Some example business process problems that you need to solve first:
  • hire the right staff (with skills and education that match your needs)
  • find the right manager for your staff (focus on domain knowledge and leadership qualities)
  • adopt conventions for naming, identifying, and classifying products 
  • establish procedures for counting, receiving, putting away, and picking stock
  • understand what products are your fast movers and move them to a convenient picking location in your warehouse (more on ABC analysis later)
  • organize your stock's putaway locations (aisles, shelves, bin locations)
  • review demand on a periodic basis and prepare yourself for possible changes in demand 
  • determine reorder points for your products and review periodically (weekly, monthly, quarterly)
  • COUNT YOUR F------ STOCK OFTEN! (a.k.a the "CYFSO" principle)
  • know the lead time of your vendors, establish safety stock levels
  • create a bootcamp training for on-boarding new staff members and management
  • schedule recurring training sessions for your staff to keep them abreast of latest procedures 
  • provide opportunities for management to learn new systems and skills
  • empower staff to take initiative in reporting discrepancies, expiration, low stock, stock outs
  • figure out what data you will need in order to do all of the above better
Try to solve some of these problems first and then look for a system to help improve efficiency of those processes.  Unfortunately, most software providers spend most of their time convincing you that their system will revolutionize your business without ever really understanding and improving your current processes.

Don't be fooled.

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