One of the more contentious issues my customers face is the constant concern of having too much inventory or not enough. Why is this such a constant struggle and a going concern for today’s businesses? Well, it’s often because companies want to be able to capitalize on sales when they’re available but not have so much inventory that it eats away at their gross profit. While this explains the struggle companies face, it doesn’t necessarily explain why companies constantly find themselves in this mess. So, what’s at play here?
Finding a Balance Between High and Low Inventory Counts
When I work with companies, they often fall into two trains of thought. One is dominated by inventory and procurement and is predicated on running a tight inventory by keeping counts low. Unfortunately, low inventory doesn’t equal low costs. The other end of the spectrum is one where the company’s marketing and sales dictate inventory counts by assailing against procurement’s inability to have the right inventory at the right time. One faction equates low inventory with low costs – which just isn’t true. Another faction ignores the high inventory holding costs of having too much product. Neither is correct and both seem to dominate from one customer to the next.
This situation has nothing to do with the type of ERP or MRP system the company is running. No, in this case, it has everything to do with an internal power struggle based on conflicting interdepartmental objectives. The sales team is measured by gross profit on sales transactions, while the procurement team is measured on its ability to keep costs low. One needs inventory to sell and the other wants to mitigate the amount held. One ignores the high costs of inventory obsolescence and damage, while the other ignores the costs of losing sales due to a lack of product. The solution lies in bridging the gap between these two divergent camps through the Asset Manager. So, what is an asset manager and how can it help bring together your sales and procurement departments?
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What is an Inventory Asset Manager?
The diagram below outlines the roles and responsibility of the inventory asset manager. In essence, the inventory asset manager manages inventory from the viewpoint of a portfolio. The position isn’t overly concerned with inventory holding costs, or lost sales due to low inventory counts, as much as it is concerned with maximizing the company’s portfolio of products. In essence, it manages inventory from both these aforementioned view points and tries to reduce the incidences of lost sales while mitigating high inventory costs.
The above is taken from the post: Small Business Inventory Asset Management: Using an Inventory Analyst
The asset manager has decision making ability over both departments and can be seen as setting the policy for the company with respect to both sales and procurement. It takes into consideration the true value of a customer’s account and measures a product’s gross profit along multiple variables.
These variables would include inventory turnover rates, inventory financing costs, per-unit freight costs on incoming and outgoing shipments, lost sales due to low inventory counts, sales forecast accuracy, and the selling points for slow moving and outdated inventory. Ultimately, it's the asset manager that finds that all-important balance between high and low inventory counts. It's the asset manager that protects against high inventory holding costs and lost sales due to low inventory of finished goods.
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