The fundamental purpose of inventory control is not "material shortages"

What is the fundamental purpose of inventory control? Many people will say that inventory control is to reduce inventory to reduce inventory, and its fundamental purpose is to reduce inventory! The result of inventory control is that the inventory may be reduced, but the production is disconnected, and the goods to customers cannot be sent out!

This understanding is absolutely wrong! This is an absolute misunderstanding!

In fact, the fundamental purpose of inventory control is to reduce inventory and sluggishness as much as possible on the premise of ensuring timely delivery, so as to support the largest possible shipment with the least inventory funds. The process of inventory control is actually a management process of demand and supply chain, and it is also a process of continuous optimization of ERP, organizational structure and process of an enterprise. The purpose of inventory control is to prevent and eliminate material shortages as much as possible, especially unplanned material shortages. By optimizing and balancing the inventory structure, the purpose of inventory reduction and timely delivery is finally achieved.

Many people and many companies are afraid when it comes to "inventory control". They often say, "If you don't control the inventory, you will still be short of materials. Once you control it, won't it be more beneficial for the shortage?!". They are afraid that the production line will stop production, and they are afraid that the goods will not be delivered, and they attribute the shortage of materials, the shutdown of the production line, and the inability to deliver the goods as "the consequences of inventory control." In fact, this is precisely due to its poor inventory control caused! Or their organizations, their processes, their people, don't have the ability to control inventory, or at least not control inventory.

Why do you say that?

What we often see is that the more companies with low inventory turnover (relative to the same industry), the lower the timely delivery rate to customers! The better a business is with inventory control, the better their customer service level is! Higher customer satisfaction!

First of all, let's say that material shortages are definitely not the purpose of inventory control.

As long as you use your brain a little, you will understand that if there is a shortage of materials every day, your production line is stopped, your finished products and semi-finished products cannot be shipped, and a large number of your other materials cannot be assembled. Your "overall inventory" How can it be lowered? Of course, everyone here must first understand that inventory control is definitely not only about controlling the inventory of raw materials or finished and semi-finished products, but also not only controlling the inventory in your own hands, but also controlling the inventory of your customers, the inventory of your suppliers, and even the inventory of your customers. It is the inventory of suppliers' suppliers and customers' customers. This is the so-called TIM-total inventory management, comprehensive inventory management. Inventory control is an integrated concept that is a process and an output of the entire demand and supply chain management process. It is meaningless to narrowly assess and manage inventory in sections.

Secondly, we need to figure out why you have material shortages?

There are many reasons for the shortage of materials, but the root cause is the following:

First: the supplier "suddenly de-commit" and can't deliver the goods - it will be produced tomorrow, and the buyer said tonight, no Sorry, the supplier is out of stock! This seems to be something that no one can do. But the question is, why do suppliers suddenly run out of stock? Why didn't we know sooner? Did we fail to make forecasts and POs to the supplier in time, or did we fail to follow-track the order with the supplier in time? Is this a problem with the planning and procurement process itself or a people problem? ! Countless experiences and lessons tell us that this is often caused by the poor management of suppliers and suppliers' delivery by buyers and planners! That is to say, it is caused by your poor control of "in-transit inventory -- on order".

Second: Customer orders "suddenly upside" - rising and material shortages. This is often a good excuse in many businesses. No one can predict the customer's order. What can be done? ! Even the King of Heaven can't handle it! This kind of thing is often understandable, but not acceptable! Why do you say "understandable"? The reason is very simple, no one can control the market! Predictions are always wrong! But why say "unacceptable"? The reason is also very simple, what are the companies doing to support a large group of supply chain managers like you? ! We say that demand and supply chain management, or integrated supply chain management, means that the reason why supply chain management exists (why are we existing?) is to meet the changing needs as much as possible! If there is no change in demand, what should supply chain management do? ! Of course, although no one can absolutely guarantee 100% full satisfaction of all customer needs, you have to be about the same, right? There is a slight disturbance in the order, and you say, Boss, it can't be satisfied, and the order is long again! So what do I want you to do here? ! What I can understand is that your "ability" (supply chain management ability, not others) is not good, but what I can't accept is that since your ability is not good, why are you still eating this bowl of rice here? ! Of course, what we are talking about here is not only personal ability, or it mainly refers to the ability of your enterprise's supply chain management organization and process. For example, from the perspective of "demand management", how do you analyze customer needs, how do you manage the product life cycle (PLM), how do you set up your MPS (Master Production Planning); from production, material planning From the perspective of your finished products, semi-finished products and raw materials, how is your inventory strategy set up and how is it implemented? From a sourcing perspective, what is the delivery flexibility you have agreed with your suppliers? How do you manage your supplier's inventory? Etc., etc. Inventory control, the world is vast and promising, so what have you done? Therefore, the "sudden increase in orders" cannot be the root cause of material shortage, or at least it cannot be an excuse for your material shortage. On the contrary, a sudden rise in orders has always been a "good problem" in supply chain management, a good "problem"! Because this can improve the company's output value, help you consume old inventory, reduce inventory pressure, and improve inventory turnover, secondly, it can test your inventory control strategy and level, and thirdly, it can improve your team, including your suppliers. The responsiveness of the management team, why not? ! If you can look at these problems positively and positively, and actively deal with such fluctuations, then you will find that supply chain management and inventory control are actually a lot of fun!

The third reason is often that you have inventory of this material in your system, but in fact the physical inventory is zero. Not much to say about this, it is obvious that there is a problem with your inventory data, or there is a problem with the receipt and delivery, or it is a back flush (MRP back flush), or the ECO (design change) has been implemented. Problems, etc., in short, it is your own problem - the basic skills of inventory control are not solid, and the shortage of materials will become a natural thing.

As for other material shortages that may be caused by sudden poor quality, blocked customs clearance, etc., it seems to be a natural disaster, but in fact it is often caused by poor inventory control--your buffer stock strategy , Supplier base management (supply base management strategy) At this time, it should at least start to work, otherwise it means that your inventory control strategy is still not in place.

In short, here, the author wants to express a point repeatedly - the fundamental purpose of inventory control is to reduce inventory as much as possible and reduce sluggishness as much as possible on the premise of ensuring timely delivery, so as to support as much as possible with the least inventory funds Great shipment. The process of inventory control is actually a management process of demand and supply chain, and it is also a process of continuous optimization of ERP, organizational structure and process of an enterprise. The purpose of inventory control is to prevent and eliminate material shortages as much as possible, especially unplanned material shortages. Through designing and balancing the inventory structure, the purpose of inventory optimization and timely delivery is finally achieved.

[Copyright] The author, Mr. Cheng Xiaohua, is the author of the first and second editions of "Inventory Control Skills in Manufacturing" (China Materials Publishing House), and the author of "CMO-Chief Materials Officer" (supply chain management workplace online novel), "TIM- Chief Consultant of "Comprehensive Inventory Management", Founder and Chief Lecturer of "Manufacturing Inventory Control Technology and Strategy", expert member of China Purchasing and Logistics Federation, personal blog: www.chengito.com