Inventory management is often viewed as an exercise in problem minimization. The goal is reducing headaches from having too much or too little inventory on hand. But there’s another way to look at inventory management, too: Inventory can be a strategic asset that furthers a company’s growth.
For businesses that currently treat inventory as a headache and would rather make it an asset, there are three fundamental actions that must be taken. First, a mindset shift is required at the C-suite level. Second, current issues with inventory must be identified and addressed. Third, a business needs to put a proper inventory governance structure in place to transform inventory management into a strategic activity.
Let’s look at each of these three actions that transform inventory from a headache to an asset.
1. Shifting Mindsets About Inventory
Making inventory an asset starts with looking at inventory differently so it is treated as a strategic activity.
This requires understanding how inventory supports the business strategy, capabilities, and goals of the company.
Some key questions to ask:
- Do we need reduced lead time to customers to better compete?
- Must we be positioned with products to achieve growth goals prior to gaining customer commitments?
- What investments have we made (are we willing to make) in Lean initiatives, flexible supply, or improved expedited capabilities to support customer needs?
- Does inventory support production efficiencies and lower operating costs?
Once this mindset shift is made and the role of inventory in strategy starts to become obvious, setting inventory targets becomes easier and the way inventory is managed gets approached differently.
2. Setting a Solid Inventory Foundation
Making inventory a strategic asset also requires addressing current challenges with inventory management that make inventory an ongoing headache; if the root causes of a company’s inventory challenges are not addressed, inventory will naturally slip back to being more about putting out fires than leveraging it for strategic goals. This is all about setting the right foundation.
Having the right foundation involves two key activities.
First, a company should have the right technology infrastructure in place to track and manage inventory. It is challenging to solve inventory problems and think strategically about inventory if there is inadequate visibility into the flow of inventory and hard data on inventory is lacking. For most businesses, this means having a modern enterprise resource planning system (ERP) in place to track inventory in real time and bring end-to-end visibility into all areas of company operations for better decision-making.
Second, setting the right foundation requires fully understanding the current inventory situation and what steps must be taken to address pain points. This is done by analyzing the root causes of actual inventory mistakes setting corrective action and triage where necessary—and revisiting this analysis on a regular basis to see if a company’s actions and assumptions are correct. As part of this process, a company also will want to deplete unneeded inventory as fast as possible to get back to the right levels.
3. Establishing an Inventory Governance Structure
The third major step for turning inventory into a strategic asset is putting an inventory governance structure in place. If inventory is not actively governed, it is hard to make it an asset because management will tend to be reactive and haphazard.
With an inventory governance structure in place, inventory is fundamentally viewed and aligned with strategy. Service levels get tied to overall company performance instead of inventory being simply about the question of whether products are in stock. This happens through an active governance structure for inventory management.
Putting a governance structure in place for inventory should not be about adding an additional layer of bureaucracy, however. This structure does not necessarily have to be intensive or vast. The main element is simply getting a process in place and someone or a group to more fully oversee inventory and routinely tie it to strategy. Having an inventory governance structure is about bringing inventory to the table during the strategy.
When these three actions are taken by a company, inventory is transformed. Inventory fundamentally shifts from being a problem to being a corporate opportunity when managed properly.
This is a subtle shift, but a profound one. While it might look as though the only difference is inventory that is better managed, inventory used as a corporate asset makes a bigger impact than just having the right stock on hand. It impacts other areas of a company in subtle ways that enable new opportunities that might not even be obviously tied to inventory.
We’ve helped hundreds of businesses streamline inventory and make it a strategic asset over the past 25 years. If your business is struggling with inventory challenges and you would like help with this process of transforming the role of inventory, contact one of our consultants at (801) 642-0123 or by emailing info@nbs-us.com.