The 10 steps And Minimizing Inventory Investment

Step #1: Get Organized

Arrange warehouse/ store in a logical and orderly manner
Appropriate shelving/ racking
High- frequency items closest to entry / exit
Group like products
Clearly identified names and code numbers

Ensure a high standard of housekeeping at all times
Use visual management techniques.
Location indicators
Reorder indicators
Line marking

Ensure consistent sign in and sign out of goods.
Identify rush periods and level load activity accordingly.

Step #2: Apply the Fundamentals with Rigor
Use the fundamentals of supply chain management and stock calculation to set and review holding requirements.

Step #3: Focus on Function, not Cost
Recognize that the function of inventory is to maintain a supply promise to customers and manage the inventory to fulf1l this need.
Inventory that does not move does not fulfi1 this need
Base stocking policy on movement and service and not cost of product .

Step #4: Identify and Focus on Leverage Points
The key steps of cost in inventory are the ownership of the item and the length of time of ownership.
To minimize cost, activities should focus on eliminating ownership (as opposed to access) and/or minimizing the time between gaining ownership and shipping/using the item.

Step #5: Limit and Prioritize Resources
Limiting the funds available for investment in inventory will drive the need to prioritize inventory and extract greater value from the investment.

Step #6: Work on the 1% errors
A key 1% error in inventory management is the tracking of receipts and delivery. By ensuring that the systems are followed and records kept, the data will be available to make sound stocking decisions.

Step #7: Eliminate Duplication
This includes duplication of items, but also duplication of locations and duplication of safety stock.
Step #8: Question Everything
The assumptions made when inventory levels were first set may no longer be valid. Have supply dynamics changed? Have customer needs/usage changed? Has our appetite for risk changed?
Review inventory assumptions on a regular basis.

Step #9: Take Some Chances
Seek to use innovations that do not have an obvious direct payback. For example, apply visual management techniques-
Arrange for consignment stocks if this has not been your policy. Remember to understand and manage the risks.

Step #10: Ignore Tradition
Review what is preventing further improvement and change it!
Review e-business changes that might provide further opportunity.

Prof. A. Rajagopal,
HEAD, SQC&OR UNIT INDIAN STATISTICAL INSTITUTE