Inventory Management for the Small
and Medium-sized Business
Inventory Management for SMBs




Inventory Management for the Small
and Medium-sized Business
by Tim Salaver, MBA, PMP, C...
Inventory Management for SMBs




                         Efficient Processes are the Key to Managing Inventory Flow

   ...
Inventory Management for SMBs




                            the inventory from the warehouse to the store based on daily...
Inventory Management for SMBs




                         accountable for any one of these negative consequences and with...
Inventory Management for SMBs




                                                                              Tim Salave...
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Cisco Salaver Inventory Mgmt Smb

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As businesses struggle with the impact of a declining economy, they need to turn internally to improvements in managing their assets and operate their enterprises efficiently by reducing waste and eliminating costly non-value added activities. One of the areas core to business success is efficient and effective management of their inventory. Using the APICS Body of Knowledge, best practices, and his experience as a leading Supply Chain Management expert, he fuses the various components into PARTS (Processes, Accuracy, Resources, Tools, and Strategy) to help guide millions of business owners. You won’t want to miss this innovative session which optimizes a business’ greatest asset.

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Cisco Salaver Inventory Mgmt Smb

  1. 1. Inventory Management for the Small and Medium-sized Business
  2. 2. Inventory Management for SMBs Inventory Management for the Small and Medium-sized Business by Tim Salaver, MBA, PMP, CSSMBB The challenges of managing inventory are daunting for large businesses and require enterprise systems and multiple departmental databases to control the information and process flows. Millions of dollars are spent and large amounts of resources are used to maintain inventory accuracy. If this is such a problem in a large enterprise, how can a Small and Medium-sized Business (SMB) accomplish this task with sometimes very limited financial and human resources? In many cases, SMB’s just react to demand and don’t have the processes or knowledge to manage their inventories. The vast majority of inventory systems intended for the SMB market do not have the capabilities needed to perform an adequate physical inventory or cycle count. Inventory is at the nexus of the Procure-to-Pay and Quote-to-Cash processes which all businesses perform whether they are in the manufacturing or services industries. Because inventory is ubiquitous and a commodity in the normal operations of running a business, the knowledge needed to manage inventory is often taken for granted. In a healthcare setting, it is common to have clinical staff take on the role of inventory manager without any formal training. In a retail environment, the store manager or clerks count items without realizing the reasons for their activity and its relationship to the financial health of the organization. Inventory is a complicated part of every company’s way of doing business. To keep it simple, think of the acronym PARTS in order to have effective and efficient inventory management. The areas which will give every business what they need should be thought of in the following manner: • Processes • Accuracy • Resources • Tools • Strategy
  3. 3. Inventory Management for SMBs Efficient Processes are the Key to Managing Inventory Flow The development of inventory processes are key to the overall success because it is within the inventory flow, whether it is physical or logical, that provide the greatest benefit when expectations are met in the Procure-to-Pay and Quote-to-Cash processes. The Procure-to-Pay (P2P) processes consist of all the requisition, purchase order, receiving, warehousing, fixed assets, matching, and payables functions. Each of these functions is related to the pull side of inventory or the supplier relationship which in supply chain management can help deliver increased customer satisfaction in providing the right products at the right time and at the right cost. The Quote-to-Cash (Q2C) processes consist of all the sales operations, order processing, manufacturing, shipping, logistics, billing, and accounts receivable functions. Each of these functions is related to the push side of inventory or the satisfaction of the customer relationship which is key to the company’s success. In both the P2P and Q2C processes, the company needs to add value to the raw input in order to deliver value to the customer. It does not matter whether the company is a manufacturer, distributor, or a service; many companies should have these functions centered on the proper management of inventory. Many SMBs treat these activities as independent, disparate tasks, but that is far from reality. The information and physical flow of inventory through the P2P and Q2C processes requires a hand-off from one part of the company to another, requiring teamwork and a centralized view of inventory. There are not individual stores of inventory owned by their own departments, but rather linked areas that in total provide the overall view of one of the company’s more important assets. Inventory Accuracy is Not an Option So much activity depends on the inventory, but nothing is more critical to customer satisfaction than inventory accuracy. APICS body of knowledge sets the expectations very high in having accurate inventory as should every company. However, that is not the So much activity case and this is where SMB’s are sorely deficient. The role of inventory has to be paramount as it is within this environment that most problems occur that create dissatisfied depends on the and unfulfilled customers. In valuing a company for a business loan or sale, one of the inventory, but nothing key factors in determining the quality of the financial statements is the accuracy of the is more critical to inventory asset account. Many a deal has been lost due to poor inventory information. customer satisfaction However, how many customers have been lost due to inaccurate inventory information. than inventory Inventory Resources Must be Skilled, Capable, and trained accuracy. Within many SMB’s the resources assigned the job of managing inventory are not trained or adequately skilled for the role. Moving inventory is not the same as managing inventory so materials handlers or forklift drivers should not be expected nor do they have the appropriate skills to maintain accurate information. Within a healthcare setting, the inventory resources usually come from the clinical side with little to no understanding of how to manage healthcare supplies. Within a retail environment, the employees are sometimes not skilled enough to understand inventory, so tools are put in place to push
  4. 4. Inventory Management for SMBs the inventory from the warehouse to the store based on daily sales data. In order for SMB’s to maximize their inventory investment, the resources needed to manage and count the inventory must know how to determine the proper safety stock, calculate lead times, and set the appropriate target inventory levels. Training should be a program that increases the effectiveness and improves the operations of the inventory function. APICS has a comprehensive inventory management curriculum and certification program that thousands of individuals and hundreds of companies have used to meet their needs. Inventory Management Tools Can Ensure Customer and Employee Satisfaction The physical flow of inventory is important as is the information related to the changes that occur. Each product in inventory has many states and locations during its lifecycle and in every situation it is critical for customer and employee satisfaction that the tools are in place that enable the employees to do their jobs and to meet the needs of the customers. As an example, there are many software applications targeted toward the SMB market. The vast majority is able to perform the inventory functions needed for very simple inventory management; however, when adding cycle counts and physical inventories capabilities, these applications are unable to perform these actions which are inherent to an accurate inventory. The tools needed for inventory management require an understanding of inventory concepts and management’s expectations. APICS has inventory management training which provides the knowledge regarding the selection of the proper tools based on the working environment and customer needs. Whether the SMB is a manufacturer or distributor, the technology needed should enable the company’s goals in achieving customer satisfaction and meeting management’s expectations. Inventory Management Strategy Enables the Company Strategy An effective inventory management strategy requires that SMB’s have the resource skills and capabilities to effectively manage inventory flow from controlling raw materials to delivering finished goods. Every company strategic plan requires an ability to execute and it is also the company’s expressed view of its market position which inventory When the inventory management has both a direct and indirect consequence. For instance, in order for a management small dollar store to be the leading discounter in its community, requires that it have the Processes, Accuracy, ability to source inexpensive and sometimes cheap product. In order to maintain its low Resources, Tools, and cost advantage over a larger discount retailer, the business needs to define a unique place in its market. However, what makes the smaller retailer more valuable to its Strategy work together customers is determined by the product selection it is able to deliver in the execution the result for the of its strategic plan. business is profitability and greater customer What Happens When the Parts Don’t Work satisfaction. When the inventory management Processes, Accuracy, Resources, Tools, and Strategy work together the result for the business is profitability and greater customer satisfaction. When they don’t work so many negative consequences can occur, such as, waste, shrinkage, and obsolescence which are the three main issues that SMB’s need to deal with. When any one of these occur the primary effect is added costs which increase prices to the customer. That in itself reduces the products value or customer satisfaction. To provide better context—waste is the inefficient processes, resources, and tools; shrinkage is the loss of product; and obsolescence is when the product is no longer wanted by the market. Within large corporations, various departments are held
  5. 5. Inventory Management for SMBs accountable for any one of these negative consequences and within the smallest of companies; it is the responsibility of all. Every employee must mitigate or eliminate waste, shrinkage, and obsolescence in the product life cycle. A culture of operational improvement and excellence should be the norm not the exception. In APICS training, the student is asked to visualize not product but cash sitting on the shelves in the warehouse or store room. How much more different is the care taken to preserve and handle the product in that context? Inventory is an extremely important asset and because of its ubiquitous nature in that it’s sometimes taken for granted the PARTS are allowed to deteriorate, allowing for inventory loss. Time is another factor which can contribute to the success or failure of managing inventory. There are so many SMBs that do not take adequate time to fulfill even minimal requirements to maintain their inventory. When products are allowed to become obsolete this is primarily due to poor product planning or even the lack of product management. The result is overstocks which can be costlier than a stock out in that the company has wasted financial and operational resources on the P2P processes in an item that will not flow through the Q2C processes. In this case, the company will have to use resources to dispose of the product taking write-offs against inventory valuation. This has an adverse affect on the company’s financial health. Inventory theft is a consequence of doing business and in most cases cannot be avoided. Industries vary in what is acceptable, but that is when the information is known. So many businesses do not have accurate inventory data so how can they possibly know how much is lost due to any circumstance. The bottom line is they can’t know at all and can only guess what their loss may be. Breakage can’t be avoided, but it can be mitigated through proper safety, material handling, and training. Shrinkage is also due to poorly or inadequately skilled workers. What the SMB lacks in inventory management it makes up in zealous ownership of an idea, but as we witnessed during the dot-com boom and bust, companies needed effective operations to deliver value to the customer. That value is the transformation of raw materials inputted into the black box which we call the company. That box has a lot of hidden costs which the customers don’t have any visibility into, but the expected output from the box is a product that satisfies the needs of the market. Inventory Management is not as difficult as building a rocket or as easy as selling lemonade in front of your house, but an integral part of your business operations in its purest form to not only generate profits but maximize them. The risk and danger in not Resources, Tools, implementing effective and efficient inventory management is the loss of the business. and Strategy or PARTS Inventory management should not be taken for granted and the Processes, Accuracy, must be put in place Resources, Tools, and Strategy or PARTS must be put in place to ensure that the SMB remains viable and meaningful to its customers. to ensure that the SMB remains viable and For more information and training on inventory management and other tools to help meaningful to its your business grow, go to www.APICS.org. Within your geographical area, there is a customers local chapter that provides classes, professional development meetings, and information pertinent to your needs. Take the time to research how to best manage your inventory. Your customers will appreciate you for it.
  6. 6. Inventory Management for SMBs Tim Salaver, MBA, PMP, CSSMBB, timsalaver@yahoo.com President, APICS Golden Gate Chapter, www.APICS-GGC.org Additional Inventory Management Resources for SMB’S Arnold, CFPIM, CIRM, J. R. Tony, Stephen N. Chapman, CFPIM, and Lloyd M. Clive, P.E., CFPIM. Introduction to Materials Management. 6th ed. Upper Saddle River: Prentice Hall, 2007. Brooks, Roger B., and Larry W. Wilson. Inventory Record Accuracy: Unleashing the Power of Cycle Counting. New York: John Wiley & Sons, 1995. Mercado, Ed C., CPIM, C.P.M. Hands-on Inventory Management. Boca Raton: Auerbach Publications, 2007. Novak, Stephen, CPIM, CIRM, CQMgr. The Small Manufacturer's Toolkit: a Guide to Selecting the Techniques and Systems to Help You Win. Boca Raton: Auerbach Publications, 2006. This information had been brought to you by The Cisco Interaction Piasecki, David J. Inventory Accuracy: People, Processes, & Technology. Network. The Cisco Interaction Kenosha: OPS, 2003. Network provides real-world answers to today’s business Wild, Tony. Best Practice in Inventory Management. 2nd ed. New York: challenges through on-demand John Wiley & Sons, 1997. videos, podcasts, and other resources. Now, businesses of Fundamentals of Inventory Control, version 2.4. Chicago: APICS The Association all shapes and sizes can receive for Operations Management, 2002. practical answers, expert advice, and proven solutions on a regular Fundamentals of Operations Management, version 2.1. Chicago: APICS The Association basis–without leaving their offices. for Operations Management, 2002. For more information please go to http://cisco.com/go/interact Fundamentals of Materials Handling and Warehousing. Operations Management Education and Research Institute of Canada (OMERIC), 1999. Americas Headquarters Asia Pacific Headquarters Europe Headquarters Cisco Systems, Inc. Cisco Systems, Inc. Cisco Systems International BV 170 West Tasman Drive 168 Robinson Road Haarlerbergpark San Jose, CA 95134-1706 #28-01 Capital Tower Haarlerbergweg 13-19 USA Singapore 068912 1101 CH Amsterdam www.cisco.com www.cisco.com The Netherlands Tel: 408 526-4000 Tel: +65 6317 7777 www-europe.cisco.com 800 553-NETS (6387) Fax: +65 6317 7799 Tel: +31 0 800 020 0791 Fax: 408 527-0883 Fax: +31 0 20 357 1100 Cisco has more than 200 offices worldwide. Addresses, phone numbers, and fax numbers are listed on the Cisco Website at www.cisco.com/go/offices. ©2008 Cisco Systems, Inc. All rights reserved. CCVP, the Cisco logo, and the Cisco Square Bridge logo are trademarks of Cisco Systems, Inc.; Changing the Way We Work, Live, Play, and Learn is a service mark of Cisco Systems, Inc.; and Access Registrar, Aironet, BPX, Catalyst, CCDA, CCDP, CCIE, CCIP, CCNA, CCNP, CCSP, Cisco, the Cisco Certified Internetwork Expert logo, Cisco IOS, Cisco Press, Cisco Systems, Cisco Systems Capital, the Cisco Systems logo, Cisco Unity, Enterprise/Solver, EtherChannel, EtherFast, EtherSwitch, Fast Step, Follow Me Browsing, FormShare, GigaDrive, GigaStack, HomeLink, Internet Quotient, IOS, IP/TV, iQ Expertise, the iQ logo, iQ Net Readiness Scorecard, iQuick Study, LightStream, Linksys, MeetingPlace, MGX, Networking Academy, Network Registrar, Packet, PIX, ProConnect, RateMUX, ScriptShare, SlideCast, SMARTnet, StackWise, The Fastest Way to Increase Your Internet Quotient, and TransPath are registered trademarks of Cisco Systems, Inc. and/or its affiliates in the United States and certain other countries. All other trademarks mentioned in this document or Website are the property of their respective owners. The use of the word partner does not imply a partnership relationship between Cisco and any other company. (0609R)

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