SAP Business One for Distributors, ERP benefits distribution software, Wholesale distribution software SAP

Inventory Management Policy

Inventory management is important for almost any type of company. It is the backbone of any successful business. If you do not have an Inventory Management Policy, you are setting the business up for disaster. The following are the top 6 reasons that you need to establish and maintain an inventory management policy:

1. Warehouse Management:

Your warehouse should be neat, organized and properly maintained. We have all entered a store or establishment at one time that visually was poorly organized, dirty and in disarray. Most likely that left a bad impression in our mind and we may not visit that establishment again. A properly organized warehouse will ultimately save you money. Items and Bins should be properly labeled and organized. Consider moving your fast-moving items near the shipping area which will help you to quickly pick and fulfill your orders to either your production floor or direct to the customer.

2. Warehouse space:

Before considering an expansion to your warehouse, evaluate your warehouse.

  • Is the proper racking in place, i.e. do you have 25 ft high ceilings with shelving or racks that only go up 6ft?
  • Do you have a great deal of excess inventory on hand that you do not need?
  • Are you ordering too much at one time? Have you talked to your vendors and asked them to maintain inventory for you?

3. Accurate inventory will ultimately save you time and money:

Having the wrong inventory on hand does you no good. You need to constantly evaluate your inventory and adjust reorder points, inventory minimums, etc. Excess inventory will cost you money and ultimately hurt your cash flow. Likewise, stock outages will cost you money too. That lost sale or lost customer that left you because you were out of material one too many times could cost you thousands or millions of dollars over time.

4. Cycle Counts / Physical Inventory:

Successful inventory management policies will always include cycle count programs and at least annual physical inventories.

5. Inventory is Money:

I often use the analogy that Inventory is money when working with clients. For some company’s inventory is their largest asset and it should be treated as such. You would not just give anyone access to your checking account and you should not give everyone in your company access to your inventories. Inventory needs to be secured first to prevent theft but second to maintain accuracy.

6. Customer Satisfaction:

Consistently running out of stock will cause you to lose customers. Customers expect that you will have the inventory they need when they need it. Effective inventory management and controls assure that you are shipping the correct material and quantities to your customers. Monitor your order fulfillment and on-time delivery. Companies with a high percentage of on-time delivery (usually more than 95%) typically have a better chance of maintaining the customer base.

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