2 Keys to Inventory Management - You CAN Be Empty But DON’T Be Late
You Can Sell Out of an Empty Wagon
“You can’t sell out of an empty wagon,” is a favorite saying among salespeople, meaning that you have to have inventory (usually lots of it) to quickly serve your customers. But it just isn’t true! In fact, if you have a successful Just In Time (JIT) supply chain management process, often the less inventory you have, the better you can service your customers. Here’s why:
- Lower inventory leads to having the right inventory in the right place at the right time – true JIT inventory management.
- Inventory buffers often lead to obsolete inventory.
- High inventory levels jam up the warehouse and make it harder to quickly find and pick what you want for shipment.
- Large amounts of inventory often lead to inaccurate records, so you don’t know what you have or what you need, resulting in stock outages.
- Too much inventory requires more storage capacity, which raises the cost of holding inventory and reduces profit.
These are just a few of the ways excess inventory hurts profits and cash flow. By running a true JIT system, you can better serve your customers and yes, you CAN actually sell out of an empty wagon.
Late Shipments – More Damage Than Just Customer Relationships
Recently I wrote if you were going to measure one thing it should be shipped on time. I have found that many companies not only don’t measure this important factor, but they don’t have any idea what the measure would be if they did. Late shipments cause lost profits in three ways.
First and foremost, late shipments can be very damaging to the customer. Many companies subscribe to Just-In-Time methods of inventory control, which require predictable lead times. If you ship late, it can disrupt their production or worse, their customer relationships. The results can be lost customers, lost sales and depressed profits.
Another negative impact is the need to expedite shipments to get late orders to the customer quickly. This often requires using expedited freight services and airfreight, which can amplify freight costs, directly impacting the bottom-line.
Finally, in an attempt to reduce late shipments, many companies build up inventory levels, adding to the costs of holding inventory. More warehouse space is needed, handling and counting costs go up, and worst case, some of that inventory might eventually become obsolete.
Late shipments can be very costly to a company. Companies can become more profitable and have happier customers by paying attention to this vital element.
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