Or, Why You Need Both Inventory Management and Inventory Control
Any lean manufacturing guru or APICS trainer will stress role of inventory management in achieving business efficiency. It is no secret that stocking too much inventory ties up cash that could be used for other purposes and having too little inventory will result in stock-outs and back orders to the point where the ability to serve the customer is damaged.
That is the no-brainer and is well-accepted and well-understood. There may be a distinction however between what we typically think of when we use the term inventory management—the pull-based replenishment systems, the Pareto analyses to determine how different SKUs should be treated, etc.—and the actually ability to achieve visibility and control of the inventory as it exists on the ground. Some business dictionaries see inventory management and inventory control as synonymous.
But what of the purchasing organization that might make the best decisions they can about inventory management but does a poor job recording what was purchased, which project or product the purchase accrues against, and if and when that inventory was in fact received in the quantities intended? The wheels fall off the wagon in a big hurry if theory and practice are not related. Or what of the business that strives to keep inventory levels within established parameters but finds that parts or materials may be consumed without an adequate record? Or perhaps there is a record of inventory consumption but it does not get entered in the system until days or weeks after the fact. How functional is an inventory management system that lacks inventory control or inventory tracking?
Even enterprise resource planning (ERP) software appropriate for small to medium inventory-related enterprises like Microsoft Dynamics GP, has powerful inventory management tools. In Microsoft Dynamics GP, there is some pretty advanced functionality for available to promise (ATP), advanced picking and landed cost. There is functionality dubbed Inventory Control as well, focusing on multiple costing methods, tiered pricing, alternate vendors and serial/lot tracking for selling items more efficiently.
But at Panatrack, we see inventory control as the place where the inventory management rubber of Dynamics GP meets the road. Your approach to inventory management is conceptual. What is actually going on with your inventory is concrete, and this requires concrete ways to reflect the true state of inventory in the warehouse. Which brings us to our first reason to make inventory control a top priority.
- Without sound inventory control, you are not in a position to execute on an inventory management process. Perhaps your process requires you to re-order on a given part or sub-assembly when you reach a certain threshold, but parts are taken from the store room or warehouse without being recorded, or at least not hitting the system until the end of a day, week or reporting period. In some cases, when there is a run on a popular item, hours can make a difference, and instantaneous visibility of part consumption is desirable. You don’t want to be promising the same inventory to two or more different customers, do you?
- Call it what you want … shrinkage, theft, losses. Whether you are in manufacturing, distribution or retail, human nature dictates that some material will disappear from any inventory-oriented business. If you think of your warehouse as a bank vault, you can start to imagine the different ways a bank controls their “inventory.” Deposits and withdrawals are carefully monitored. You can achieve the same degree of control in your inventory operation! And once you do, shrinkage will become less of a problem in part because you will have concrete data that enable detective controls of where your inventory is going.
- Many companies struggle with the aforementioned challenge of employees not recording inventory transactions. But sometimes they also struggle with a lack of transparency in purchasing and receiving in terms of what is ordered, what is received and then what inventory is released and available for production.
Even in the presence of the most noble and enlightened inventory management practices, lack of inventory control or inventory tracking will be a barrier to progress. That is one reason that barcode scanning for inventory control is such a popular add-on for a system like Microsoft Dynamics GP. When we automate the entry of large number of inventory transactions, they appear in Microsoft Dynamics GP instantaneously. We are no longer introducing human keypad error into our processes. And we can collect data at critical control points in our operation so we can ensure our inventory management plans are being executed.
THAT is the difference, in our minds, between inventory management and inventory control. You can find out more about our approach to inventory control, check out this whitepaper, Getting the Most from Inventory Management, Leveraging Microsoft Dynamics GP and Barcode Technology.