Modern-day businesses across a wide range of industries operate in a highly competitive and customer-centric environment. As such, they have to constantly strike a balance between their inventory levels and meet changing demand for their products.
Lean Inventory Management is one of the key strategies that help businesses reduce inventory storage & handling costs, minimize spoilage, and improve agility in the core inventory operations. Read on to know how your business can benefit from it.
What is the Lean Inventory Management System?
Lean Inventory Management is a modern approach to inventory management that refines traditional inventory practices and focuses on reducing excessive inventory, minimizing inventory costs, and achieving greater profitability.
Businesses across the world deploy ERP software to adopt lean inventory practices, such as holding only that part of the inventory they would need within a specific duration of time. This business-critical software automates core inventory operations, enables end-to-end inventory analysis, and plays a critical role in reducing inventory costs.
Key Principles of Lean Inventory Management
• Cost-Efficiency in Inventory Operations
One of the core principles of Lean Inventory Management is to bring down the cost of core inventory operations such as inventory storage and handling. This money is then diverted to other important business aspects, such as investments in new technological solutions, such as the Internet of Things (IoT), and other critical projects.
• Precision in Inventory Forecasting
Use the modern-day Business Intelligence Tools to analyze the demand for your products through historical trend analysis. The aim is to develop effective inventory handling strategies, get projections about the inventory expenditures, lower inventory costs, optimize production schedules, and allocate resources efficiently.
• Multi-enterprise Collaboration
Multi-enterprise collaboration encompasses the sharing of data, knowledge, and resources between different companies. It aims to solve problems faster, pave the way for innovation & cost-cutting, and achieve better results. Maintain dedicated relationships with your suppliers and partners, and make use of a dedicated Online Procurement Management System to streamline back-order management, reduce procurement expenditures, and improve operational efficiency.
• Buffer Stock Management
Maintaining adequate reserves of Buffer Stock (also known as Safety Stock) protects you from sudden demand spikes, absorbing supply chain shocks, and meeting customer expectations. The lean inventory management approach involves adjusting & minimizing your buffer stock levels according to the demand & supply variability, inventory replenishment time, and other factors.
• Process Standardization
We all know that adopting process standardization helps provide a consistent experience to the consumers. Lean inventory management focuses on improving employee efficiency, reducing duplication of tasks, and lowering wasted time.
What are 4 Types of Inventory Management System?
1. Days Sales of Inventory (DSI)
Days Sales of Inventory (DSI) tells businesses how long their inventory sits in the warehouse before it is sold in the market. In order to calculate it, you will need to know two factors: The Cost of Goods Sold (COGS) and the Time Period.
2. Just-in-Time (JIT)
The Just-in-Time (JIT) Inventory enables businesses to make the inventory readily available as and when they need it. It helps prevent excess stock and reduces the inventory storage costs. In order to accomplish the goal of JIT, they closely work with the suppliers and partners.
3. Material Requirements Planning (MRP)
The Material Requirements Planning (MRP) method focuses on identifying the need for specific materials at different stages of the process and ensuring their easy availability. A thorough analysis of the materials helps businesses bring down their inventory costs and reduce wastage.
4. Economic Order Quantity (EOQ)
Businesses use this method to calculate the ideal inventory quantity they need and bring down the costs. Lower inventory storage, handling, and insurance costs translate into higher profits and better growth opportunities.
The 5S Framework of Effective Lean Inventory Management
1. Sort
Perform an extensive analysis of your inventory and ensure only essential stock items, materials, and equipment are kept in the warehouse. Think of discarding the inventory you don’t need. This will help speed up inventory operations, reduce overall costs, and minimize tracking errors.
2. Straighten
The next step involves reorganizing the stocks, materials, and equipment for easy accessibility and increased efficiency. Relocating items to the appropriate location will help your inventory staff find them faster and fulfil orders quickly.
3. Shine
Improve visibility and get rid of the clutter in the warehouse area by performing regular clean-up and maintenance. A well-maintained warehouse will promote a healthier work environment and improve quality & safety.
4. Standardize
Set up clear guidelines and procedures to ensure adherence to higher quality standards and consistency in the inventory operations. Laying down clear standards will help employees get tasks done quickly, efficiently, and with minimal errors.
5. Sustain
Develop a culture of continuous training and improvement. Use Key Performance Indicators (KPIs) to track the efficiency of the lean practices in the inventory management. Seek feedback from your employees to address potential issues in the process, get things done faster, and reduce costs.
« You can also read : Learn about Negative Inventory And how to resolve it with Sage ERP »
Advantages of Adopting Lean Inventory Management for Modern Businesses
→Higher Operational Efficiency
The concept of lean inventory focuses on minimizing redundancies in various processes and simplifying process workflow. It eliminates unnecessary operational delays and ensures optimal usage of resources to respond quickly to changing market dynamics.
→Reduced Inventory Costs
Reducing excess inventory translates into lower costs for businesses. Retail ERP allows decision-makers to free up the capital tied to the stock that isn’t selling. With lower operational expenses, you can invest in other critical business areas that boost profitability.
→Competitive Advantage
Lean inventory management paves the way for continuous improvement through data collection, feedback management, and a series of proactive measures. It helps eliminate wasteful processes, reduce duplication, improve quality, and increase competitiveness.
→Better Inventory Tracking
Lean inventory management alongside ERP implementation allows your business to closely monitor your inventory levels with lower tracking errors and avoid the risks of over-stocking and under-stocking. With a highly accurate inventory reporting system in place, your business will be in a better position to make strong data-driven decisions.
→Healthier Cash Flow
Last but not least, lean inventory management helps you maintain a healthier cash flow. A positive Cash Flow Statement is essential to capture new opportunities, meet your financial obligations, and mitigate operational challenges.
Proven Strategies to Foster a Culture of Lean Inventory Management
⇒ Newer Technological Adoption
Adopting newer technological solutions has proven to be helpful in improving productivity, reducing costs, and adapting to changing market dynamics. A manufacturing business can employ manufacturing ERP to optimize core manufacturing & inventory operations. A pharmaceutical business may benefit from process optimization & standardization features of the pharma ERP Software. An ERP provides an industry-tailored experience for profit maximization.
⇒ Risk Assessment
Identifying risks and problem areas is the first step towards dealing with inventory chaos. Risk management involves a series of steps such as continuously collecting and analyzing information through sophisticated algorithms and Business Management Software, performing A&B Testing, and developing contingency plans.
⇒ Inventory Optimization
Inventory Optimization is a powerful strategy that businesses use to reduce their inventory storage and handling costs, reduce excess stocks, and increase profitability. It involves taking a series of measures such as reducing the time spent on inventory-specific operations (receiving, sorting & preparing stocks), optimizing warehouse storage, and choosing the right inventory method (FIFO method or LIFO method), among others.
⇒ Demand Forecasting
Timely and accurate demand forecasting helps businesses ensure they are prepared to meet sudden fluctuations in the demand for their products and don’t miss new opportunities. It involves extensive analysis of past sales, current trends, and consumer behavior to make assumptions about the demand in the upcoming weeks, months, and years.
⇒ Just-in-Time Inventory (JIT)
The Just-in-Time Inventory is an inventory strategy in which the manufacturer purchases goods only as and when they are required. They use a specialized Inventory Management System to automate the inventory-specific tasks, reduce manual intervention, and minimize the potential for tracking errors.
Is Your Inventory Holding You Back? Go Lean with Sage X3
Inventory mismanagement is a major culprit responsible for sucking up your working capital, delaying product shipments, and causing irrecoverable reputation damages to businesses around the world. If frequent inventory chaos is affecting your business operations and ever-increasing inventory storage & handling costs are draining your profits, it’s time to explore a creative alternative.
Deploy Sage X3, a game-changing solution that lets you oversee complex business operations and align your production strategies with changing market dynamics. It helps promote smooth workflow, reduce inventory spoilage, and ensure higher customer satisfaction. It is a must-have tool to maintain competitiveness in today’s fast-paced and rapidly shifting business landscape.
