The term “Inventory” is often associated with manufacturing industries but more recently has been a focus for retailers and their distribution services keen to reduce costs and simultaneously improve service. Now as the need to reduce costs whilst improving service becomes something that other types of organisations are realising, the role played by successful inventory management is becoming more apparent.

Standard costing systems do nothing to help in the first instance because the cost of products sold or services provided include only those costs of the materials directly used. Perhaps once or twice a year, following a stock check, a financial write off tends to be the first pointer that inventory is being poorly managed (Write ups are rare). Additionally, materials that are not used in the direct provision of services or products are often left out of this equation but the importance of managing these inventories well is equally important in terms of keeping costs low.

Left unchecked poor inventory management will manifest itself in a number of problems.

• Service levels may fall. Simply having more inventory is never the answer to delivering better service. Too often the inventory held is the wrong inventory or you cannot get to or see the correct inventory because the wrong inventory is in the way.

• Costs may rise. Large levels of inventory generally require places to store them, people to look after them and staff to order as well as count them.

Quality issues often arise as people use material that is there as opposed to the correct material. Sometimes the material that is in stock is there because purchasing has done a good discount for a bulk deal.

The vicious circle is that costs rise and service levels fall as quality fails.

Some organisations turn to forecasting as a solution and that may be necessary in some instances but remember the further out you attempt to forecast the harder it becomes.

You may predict tomorrow’s weather with some certainty but how confident do you feel about next week’s.

We believe that the best approach to these problems is to consider how you would run your organisation if you were actually prevented from holding any inventory at all.

For example, what would you ask your regular suppliers to do if you had no space to store goods and materials? - Hold goods on your behalf or make small daily deliveries perhaps.

What would be the best way for you to order materials under this supply regime? More to the point, if you know your supplier is coming everyday would you need to place an order?

The most commonly heard argument against this type of thinking is that costs will rise.

So, what tasks and responsibilities are you going to give to those people who currently order materials, store them and no doubt spend time counting them? Fear not there is plenty to do. Who is going to find those suppliers who can deliver in this way? Who is going to ensure that supplies meet your needs? For many organisations the use of local suppliers is an important policy and often it is local suppliers who are only too willing to respond in this way.

This type of radical thinking is required to ensure visible improvement in this area. Whether you are running a store for Local Authority repairs services, managing the warehouse at a manufacturing plant or simply looking after the stationery cupboard the same principles and benefits apply to managing your inventory well.