Managing Inventory

One common priority we have as supply chain managers is managing inventories.  We make items available when needed but at the same time make sure we don’t have too much that ties up our enterprises’ money.    Sometimes, inventory management takes so much of our time that it dominates our job more than anything else. 

Inventory is anything that we use and keep stock of.  These include:

  • Finished products;
  • Raw & packaging materials;
  • Spare parts;
  • Office supplies;
  • Chemicals;
  • Laboratory supplies;
  • Commodities;
  • Components that accompany services or marketing initiatives (e.g. cable television switches & wires, vending machines, beverage dispensers, off-site displays);
  • Livestock & feeds;
  • Agricultural crops;
  • Water
  • Land

Anything we buy, store, and use are practically inventories, even though some financial professionals would not classify all as such (e.g., accountants would consider office supplies as expenses rather than as inventory deserving to be treated as assets). 

We spend a lot of time managing inventories because they take up space, entail storage & handling expenses, and they become a major pain when we end up scrapping or disposing them.   

Over the decades, academics and so-called experts have developed numerous models and systems to manage inventories.  None have truly worked in that not one has universally been able to cover all items.  A model that would work for one group of items wouldn’t be applicable for another.  An inventory model tailored for warehoused items wouldn’t work well for a business that stores chemical liquids in tanks.  A model for managing stocks of electronic components wouldn’t be as useful for fruits & vegetables.   

We often apply the simplest inventory management model available.  It’s often the one that tells us when to replenish when the inventory reaches a predetermined reorder point.  When an item’s inventory level depletes to the reorder point, we order for replenishment.  Such a model makes it easy for us to manage hundreds of items while saving us the time in monitoring all of them. 

Such simple re-order inventory management systems haven’t been that successful, however, in helping us attain our goals in serving customers perfectly & productively.  The realities of unanticipated demand patterns, product lifecycles, and unreliable supply from sources hinder the effectiveness of re-order point systems.  We either run out of stock because the demand out-paced the lead-time of supply or we end up with too much because a product became obsolete in the wake of new items in the market. 

Because most of us can’t rely on simple re-order systems, some of us invested in so-called state-of-the-art hardware and software in our attempts to automate inventory management.  We expected that an automated system can handle most of the inventory management work only to realise later that it can’t.  Computers can do only so much with the data we give them.  And via our experiences as supply chain managers, we ended up spending more time fixing the information system than managing the inventories. 

Inventory management, as the latter word states, requires management—planning, organisation, direction, & control.  It needs our oversight and a doctrine of proactivity given whatever strategic objectives our employers, or owners of enterprises, have laid down.    

Each item in inventory has its own characteristics and value.  One is either cheap or expensive, has a short or long shelf life, is fast- or slow-moving, is perishable or non-perishable, and varies in how it is sourced, manufactured, packaged, stored, handled, and shipped.  Each item is an individual; it is unique and ideally requires its own specific means of management. 

Dealing with a few items is one thing; dealing with thousands, however, is another.  We are burdened by the sheer task of making available items when they’re needed and making sure we don’t have too much. 

Clarity is the bedrock to successful inventory management.  How much do we have right now and how much will we have tomorrow?  What’s the turnover like for each item?  How long will an enterprise sell an item before phasing it out?  What are all the characteristics of each item?  How much do we keep in stock as per working capital targets?  What are the materials or components that make up each item? 

The clearer the information we have about the items we have and the respective policies we set for them, the easier it is to manage inventories.  Managing inventories is about managing items in terms of what & how much to buy, how much to keep, how we store them, how we handle them, and how we dispatch them.

It also includes managing how we relate the items in our inventories.  What materials and components come together to form value-added items?  What items are parts that make up items that are the whole?  What items are accessories or supplies in the maintenance or formation of others? 

When we have complete knowledge of the items we possess and what standards or goals we have for them, it becomes relatively elementary to set the policies & procedures that govern how we manage inventories.  It becomes easier to figure out the best way to manage each individual item based on what they are and the value each contributes.  

It becomes easier to establish the inventory management model that would work. 

The following are previous essays on inventories, if you want to read more about how to better manage inventories. 

How to Avoid the Aggravation of Unavailable Items

What is the Right Supply Chain Model for New Products

Hoarding and How to Discourage It

The Importance of Making Available What We Promise

Non-Moving Inventories: The Supply Chain’s Elephant in the Room

The Pros & Cons of Steady Stream Supply Chains

About Ellery’s Essays

Published by Ellery

Since I started blogging in 2019, I've written personal insights about supply chains, operations management, & industrial engineering. I have also delved in topics that cover how we deal with people, property, and service providers. My mission is to boost productivity via offering solutions and ideas. If you like what I write or disagree with what I say, feel free to like, dislike, comment, or if you have a lengthy discourse, email me at ; I'm also on LinkedIn:

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