Part 2 of a 6 Part Series: Building Infrastructure Strength for Future Growth
Each week, we will go into details on how to address project and change management now to create a resilient and robust organization for tomorrow.
If you missed last week’s blog on Cultivating Supplier Relationships, you can check it out here.
This week, we will look at the 2nd of 6 ways a company can use downtime to impact the greater good of the organization and position themselves to be a better, stronger company when the work picks back up.
Assess Inventory Management
Manufacturing companies often look for the best time of year to perform in-depth inventory counting and reconciliation. For most, the holidays are the best time to do so. For others, whatever slow season makes the most sense will often get utilized. Performing a full inventory check is time-consuming, but necessary. Ensuring the accuracy of the inventory management system is critical when planning production for the future. When a count is off, the risk of not meeting a customer’s needs increases. It’s critical to identify the best time to review minimum stock levels, simplify the reordering process, and look at ways to automate processes. In the future, this downtime filler could be a thing of the past. Businesses utilizing automatic identification and data capture (AIDC) asset tracking processes are able to reduce the frequency of manual inventory counts and save substantial labor hours. That will help free up time to tackle some of the other projects suggested here. Essentially, the next time inventory is conducted, use it as a benchmark and then utilize process improvements in order to track enhanced efficiencies.
Specific Example: ABC Analysis or the “The Pareto Principle” (The 80/20 Rule)
When it comes to stock or inventory management, ABC analysis typically segregates inventory into three categories, based on its revenue and control measures required:
· A is 20% of items with 80% of total revenue and requires tight control
· B is 30% items with 15% revenue
· C is 50% of the things with least 5% revenue and indicates more most liberal treatment
The numbers of any particular company may be different but have a similar distinguishable pattern. An ABC analysis aims to draw managers’ attention to the critical few (A-items) and not on the trivial many (C-items) and focus inventory control efforts on those particular items where management will have the most significant effect.
Once an ABC Analysis is complete, companies can use this data in supplier negotiations. When it’s all about getting the category A products sourced, it is understood that 70 percent to 80 percent of the money is about to be invested in those suppliers. Negotiation is a must. There are chances when a supplier might make a nod to your offer, but do not back off. You can still make offers like reducing the down payment, providing free shipping, etc. Your goal should be a win-win for both yourself and the supplier.
Please check back next week for a look at part 3 of this series where we will discuss ‘Supply Chain Reconfiguration’.