Inventory Management Is An Absolute Necessity

Likely, none of us remember the “good ol’ days” when inventory management meant sharpening your pencil, counting your goods and putting notations in your ledger while erasing and making changes to numbers that were a little off. Since those days, we’ve had the Industrial Revolution, the Information Age, the Computer Era and the advent of Artificial Intelligence (AI). All of those epochs made business more productive and, at the same time, erased all memories of “simpler times.”

However, inventory management continues to be one of the most important facets of any business model, one that cannot be disregarded. What are its benefits and what strategies are available to business owners who deal in machinery parts today?

The Benefits

Far from being an option, the lifeblood of a business that maintains an inventory is the inventory itself. You may deal in “parts” as big as a dozer bucket and as small as a cotter pin. If these were all just stocked together on a few shelves, how would you know how to find one and whether or not it was out of stock?

As an old saying states, “Inventory management is not an accounting issue, it’s a survival issue.”

Indeed, a management system is the only way to know what you have, why you have it and where it can be located. This information helps to reduce operating costs, gives you insights that aid with decision-making regarding future purchases, cuts down on equipment failure and creates happy customers.

Imagine this scenario: A skid-steer hydraulic cylinder ruptures in the middle of the work day and you get a call from an agitated customer. You simply look on your computer and reply to the customer, “You’re in luck. We have three of those in stock. We’ll have one ready for you to pick up in 10 minutes.”

Nothing creates more goodwill than being able to neutralize a challenging situation and giving a grateful customer exactly what he needs exactly when he needs it.

Audits Are a Necessity

The single-most important component of any management system is having regular audits. In its simplest terms, an audit is the process of using an analytic procedure to count what you have on hand. These procedures can use physical eyes-on counting or electronic counting methods, and one or more of at least a dozen sub-methods that focus on specific aspects of your business.

When the audit is completed, a comprehensive, easy-to-read audit report will be produced which can be used in future decision-making. This all will help companies improve their businesses.

Common Strategies

One of the most beneficial additions to the management system has been automated inventory. This system uses software to collect data regarding current inventory usage and transforming it into actionable intelligence that enables a business to respond quickly to market changes and to scale.

Using Radio Frequency Identification tags and Internet of Things sensors, items can be tracked and recorded, as well as made viewable by all the necessary personnel using Wi-Fi networking.

A significant upgrade to automated inventory is the predictive inventory system. In addition to collecting current sales data, this system uses historical data as well, enabling businesses to analyze multiple possibilities that can come up in the future.

Supply chains have been notoriously unpredictable, leading to unplanned delays and extended lead times. Predictive analytics have mitigated much of that risk by helping to plan for contingencies. For example, adverse weather conditions or geopolitical events could affect the ability to have products reach you — and thereby your customers — in a timely manner.

Predictive analytics enable a business to foresee these issues and make appropriate adjustments ahead of time.

The Balancing Act

Likely the most common inventory problem that businesses face is concerns over having too much or too little stock. Only half-jokingly, industrial engineer and businessman, Taiichi Ohno, once said, “The more inventory a company has, the less likely they will have what they need.”

Heavy machinery uses thousands of parts, meaning that a supplier needs to have tens of thousands of parts available. While things have improved greatly since Ohno’s day, shrink and swell continues to be a relevant concern for many businesses.

Most companies follow one of three common business models to determine inventory production and/or purchases.

The Pull Strategy gauges its inventory based on clear demand from customers. When a customer “pulls” a product off the shelf, it is quickly replaced to keep pace with customer demands. Even though this strategy keeps inventory costs low, an obvious downside is what would occur when consumer demands suddenly rise, resulting in shrink and stocking out.

At the other end of the spectrum, the Push Strategy maintains inventory based on expected or forecasted demand. Using this method, a company would produce many products at one time, “push” them onto the shelves and then wait for the customers to come in. This keeps operating costs low, but problems with swell can occur if consumer demand does not meet forecasted levels. Then the company is potentially left with a glut of inventory that they can’t sell.

Some companies opt for an apparent compromise between these two methods by implementing the principles of both — the Just in Time (JIT) Strategy. The JIT model relies on companies having raw materials on hand but not actually creating the product until the demand comes in. While this does keep overhead low, it runs the risk of creating delays in delivery if the demand fluctuates. Although no strategy is foolproof, a careful analysis of business metrics will help companies find a method that produces the most predictable results for that company.

The Future

A real game-changer in the world of business analytics has been the advent of AI. This technology enables machines to mimic human intelligence by learning from input data, making predictions and automating tasks.

AI is able to perform virtually all of the processes that have been mentioned so far and many more. It can gather relevant data, employ predictive analysis, propose the most effective business decisions and even make those decisions for you, if you choose, and it can do all of this quickly, accurately and tirelessly.

At first blush, it would appear that AI is the panacea for all inventory-related problems, but there are a few caveats included with these benefits. Because AI relies entirely on data input, if little data is available or if it is inaccurate, incomplete or outdated, it could lead to flawed predictions.

Implementing AI can be a substantial investment. The cost of the hardware and the software, as well as the training of skilled personnel, could prove to be prohibitive. Challenges could also occur in integrating AI into existing systems, which could require custom development and additional costs.

And because AI involves using sensitive data, security and privacy concerns arise. Any AI business system would have to be robust against cyberthreats and protect the business data.

In addition, only having been in common use for a few years, AI is effectively still in its infancy. Whereas it has been a boon for many businesses, including machinery parts manufacturers and suppliers, it still has a long way to go and a lot more to learn. That being said, these facts should not deter businesses from exploring AI for inventory management. This knowledge should just serve as points of awareness and preparation when considering if, when and how to integrate AI into their business models.

The key takeaway from this discussion is that inventory management is not an option; it is a necessity. Closely related is the need for regular audits to keep a business transparent and to be able to make necessary adjustments quickly. Numerous models are available for customizing a management system to a business. Each company should perform its due diligence and research and choose one that fits its needs.

Remember, your inventory is the lifeblood of your company, and inventory management keeps it flowing.