Commentary: Keys to help prevent inventory disorganization

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Updated May 28, 2020

By Lynn Buck, MacKay & Company

I chose to write about this topic this month because of my firsthand experience in dealing with and attempting to address inventory issues that cost time and money and contributes to staff and customer aggravation.

In the perfect truck parts inventory world, a distributor wouldn’t have a need for a warehouse. Parts would be ordered and drop-shipped directly to the customer. While this works for some components and some businesses, they are likely in the minority.

A disorganized inventory should be a thing of the distant past with today’s technology, but with acquisitions and personnel changes, what you have under your roof can get off track. I’m not an inventory expert but will point out some basic areas that I feel are important.

The first key to having an organized inventory is a good ERP system. This system should integrate purchasing, accounting, shipping, and receiving. This sounds expensive, but most small business accounting software can be used for small shops and distributors while more expensive systems are needed for multi-location distributors.

For multi-location distributors, the system needs to be set up to place demand in the correct warehouses — those closest to the customer. If a customer in California orders 25 starters and my closest distribution center doesn’t have them but my distribution center in Chicago does, the system needs to place demand in the distribution center closest to California, not Chicago. Otherwise, if the replenishment order is placed for Chicago, you will have product that could sit on the shelf taking up valuable space and inventory dollars in Chicago and a future customer in California will have to wait longer for the part.

Make sure the cross references are readily available to offer customers an option if their first selection is out of stock. Ensure information is entered correctly into the system. The old adage of ‘garbage in, garbage out’ holds true. If someone in receiving fat-fingers an order and enters 100 starters instead of 10, that’s a big problem. Those types of issues should be short-lived given the next point.

The second key to an organized inventory is reconciliation between invoices and quantity added to inventory, which should catch receiving issues. Technology like bar-code scanning does help but because receiving errors happen, and likely will happen, reconciliation is key even if it is a pain! Reconciliation between invoice, packing sheet, and product received should happen as soon as possible to avoid any upset customers.

If quantity on hand shows 100 and a customer wants and expects 25 today, but you actually have only 10, I wouldn’t want to make that telephone call telling him 15 of his trucks won’t be rolling tomorrow.

The third key of good inventory is good, old fashioned eyes on counting of inventory. If you can physically count it, it should be counted. The more complete the count, the better. Cycle counting is used in many operations, but in my experience has never seemed adequate to catch many of our inventory issues.

There are variations on cycle counting with which to experiment to see what works for your organizations, but just because you’ve always done it that way doesn’t mean it’s the optimal way for it to be done now. Measure each option and find out what works best for you and your customers.

There are many books and resources on the best practices in inventory management. For many of you who read this, you already know this information. But does your team in sales or other departments understand why you don’t have product?

Again, in my experience, inventory can become like a living being that grows out of control — costing you money or shrinking and frustrating customers. Organization and knowing what you have is key to avoiding these issues.

Lynn Buck, information technology analyst, joined MacKay & Company in November 2012. His background includes more than 15 years of data analysis and reporting in a variety of settings. Most recently, he has performed the roles of pricing manager and inventory manager for two aftermarket parts distributors. Prior to that, he analyzed markets for new parts and service locations for Navistar.

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