Thursday, August 21, 2008

Slow-moving inventory

You want to stock the products that your customers request most often in your warehouse(s). But what about products with sporadic sales, or no sales at all?
Even though a product is infrequently taken from stock (or may have never been taken off the shelf), the item must be available for immediate delivery if it is ever needed.

Every business needs to create its list of critical repair products. But as you add each item to this list, consider:
Is the item "critical" or merely "important"? A critical part not only shuts down a machine, it shuts down an entire process or vital service. For example, one of our customers is a food processor. They have one large mixer that is used to combine the ingredients necessary to make any of 25 different products. If the mixer is out of service, none of the 25 products can be produced. The company keeps on-hand in their inventory a spare piece of every component of the mixer. On the other hand, the company has 10 identical wrapping machines. If one wrapping machine breaks down, its workload can be reassigned to the other machines. Production might be delayed for a couple of hours, but the process would not be shut down. The spare parts for the mixer are critical inventory. Those for the wrapping machine are merely important and can be ordered as needed for next-day delivery. Keep in mind that a critical item has the potential, on its own, to shut down a process. When creating your critical item list be sure to note the process that is dependent on each product.
Maintaining critical item in inventory is considerably less expensive than buying one or two pieces whenever they are needed from an alternate source of supply. Keeping several years' supply of selected inexpensive products on the shelf will not have a great effect on your company's overall profitability. And by putting a significant amount of these items in inventory, you won't waste your buyers' time forcing them to continually deal with these "nuisance" items. Concentrate on ensuring you have the optimal quantities of those items that have the most dollars flowing through your warehouse.High-profit, slow-moving items may also represent a good inventory investment. The gross profit that results from each sale may be so large that it offsets the cost of carrying the inventory for a prolonged period of time.
Most companies have to maintain slow-moving products in inventory. However, you must be sure that each of these items improves your overall customer service and/or your company's net profitability.

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