How to Manage Inventory in 10 Steps (with Pictures)
How to Manage Inventory with a System
- The first step in managing your inventory is recognizing that it needs managing and that it isn’t being managed now (at least not as it should be). I won’t say this is half the battle…more like 25%. One might be surprised at how long a business will struggle along in inventory denial before taking responsibility and admitting there is a problem. Often awareness that inventory is not being managed well comes in the form of a (hopefully) minor
disaster surprise in some operation on your inventory. Examples might include:
- Not being able to deliver items on schedule because they had to be ordered unexpectedly (I could have sworn we had five of those on the shelf!)
- Delivering the wrong items by mistake (Oh…you wanted the 5C1-Zero-3 not the 5C1O3!)
- Simply being overwhelmed by quantity. (I know it’s around here…somewhere!)
Recognize the Inventory Problem
- The second step is to characterize your specific inventory issues, deficiencies, and needs. Not all inventory problems are the same–though they are related. Make a list of the symptoms you are experiencing. Don’t be afraid to ask other stakeholders what issues they encounter that make their lives difficult. Review your list with other stakeholders. An example list might include:
- Receiving leaves entire palettes of goods on the warehouse floor and we don’t know to which projects the goods are allocated.
- Expensive materials come in, but no one checks them for quality assurance until months later…only to discover that the materials are defective.
- Supply doesn’t keep up with demand because purchasing is ordering the wrong quantities or the wrong products
- If you already have an inventory system, find out if it is actually being used the way it is intended. Are the users keeping system data up to date? If now, why not? If you don’t yet have a system, you probably should invest in one. We have our own recommendations, of course. Why use an inventory system? Well, the short answer is we are human beings with finite brains. Eventually, we can no longer keep up with complex management problems.
Oh yes…a brief note about spreadsheets. Spreadsheets are wonderful tools, but they’re not designed to manage inventory. You really, really need a system built on a database for this task, even if you are an Excel guru.
- Now that you’ve shopped around, perhaps consulted some folks you know and trust, and have picked an inventory system you think will fit your needs, it’s time for some due diligence. Find out from the vendors if the system can scale as you grow. Is support readily available? What about training? Can the system be configured–or even customized, if necessary–for the specific challenges you identified in step 2? Request that the vendor come physically on site for an evaluation (some may provide this service for free or a nominal fee.) Ultimately, you will pick a system and go with it.
WARNING: There are still six more steps. Do not stop here. A system is indispensable, but just having a system will accomplish nothing. Managing inventory takes commitment.
- Put someone (almost certainly not yourself) in charge of the inventory system implementation. Appoint one person only. Groups (even groups of just 2) are great for brainstorming but horrible at leading. The person you appoint needs to have a passion for improvement. This person will work with the vendor’s implementation team to configure the system and train users. Be sure to give this person sufficient authority so that other employees will take him seriously. Reward your implementation leader when things go well, and he will take care of your other users.
Put Someone in Charge
- The sixth step is a big one: actually adopt the system. This means taking ownership of your particular implementation of the system and building processes your users will follow to perform their jobs efficiently while keeping the inventory up-to-date. With few exceptions, your operations will be centered around inventory. Purchasing, sales, shipping, manufacturing, etc., are all events that occur on inventory one way or another. Users need to be trained and the system piloted. This step takes time. Don’t be impatient.
We recommend a piloting process to help users gain confidence with the system and new inventory processes little-by-little.
When adopting the system, remember that people have a natural resistance to change. Sometimes customizations can help to make a workflow occur in a more natural way to which the users are accustomed, but oftentimes there is a real need for change. (Inventory problems point to process problems.)
Adopt the System
- Organize. Work with your implementation leader and vendor to develop an inventory organization scheme that is sufficient for your needs but not overly complex. Some inventory can spoil or expire. Such items should be tracked by lot number in addition to location. Other inventory must be identifiable uniquely and should be serialized. Not all inventory is that way, however, so don’t impose the same organization on every kind of item. Likewise, you may want to restrict certain goods to only a few locations while other goods are distributed to stores across the country.
Get a Handle on the Scope of the Problem
- Measure your users. People naturally perform on what they are being measured on. The new processes are important to you. It is up to you (and your implementation leader) to make them important to the rest of your team. Be sure to reward users for following the correct processes.
- Make use of technology. There is a plethora of mobile devices out there. These devices can be used to help your users use the inventory system better and more reliably by making tasks (especially repetitive tasks) more convenient. For example, if you can take an inventory count on an iPod with a bar code scanner that interacts directly with the system, that will eliminate the mistakes inherent in writing those counts on paper and entering them into the system later. It will take less time, as well. (Yes, we offer that.)
- Stay alert. Don’t get lazy. Insist on following the process. An inventory system is there to help with volumes of data our brains have difficulty retaining, but it is not a brain. It won’t and can’t make you use it if you or your users choose not to.