Risk Management and Inventory Control

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In any size operation where warehouse goods are concerned, the finance department should be weary of escalating warehouse labour costs and the ownership of excessive inventory. An inventory control system in its simplest form creates efficiencies around receiving, putaway, picking and the shipping of goods. It enforces cost-saving work-flows at the point of labour through purpose-built logistics software. Through the use of wireless technology and rugged scanning devices, bar-codes both on the product and the slot locations are scanned to enforce an efficient warehouse process. Modern warehouse management software can provide a new level of product tracking and validation that becomes essential in the management inventory.

From a risk management perspective, inventory control solutions can help provide the kind of labour efficiencies and audit trail that provide a CFO with key information during reporting periods. A bar-code based warehouse management system can offer a sophisticated level of detail that is important when financial departments are looking to state inventory assets as a dollar value on the balance sheet.

Having tight controls on warehouse inventory is important because excess cash will be spent on warehouse inventory that is not turned, shipped or sold. These scenarios can reduce the overall opportunity costs for a business looking to invest its dollars wisely in other investments (not just inventory) and realize a positive net present value for alternate proposals.

Depending on your industry, most systems permit the tracking of expiry dates, re-order points and provide analytics on which stock items move the most and generate the most profitability. There is a general rule that 80% of sales or profit comes from 20% of ones inventory. This kind of information can be calculated easily by a warehouse management system. Another important result of having a system control your inventory is having a snap-shot of inventory that is 99.9 percent accurate; this means that the dollar value of inventory assets is also very accurate. This high-degree of accuracy is accomplished through a continuous process of bar-code validation as material handlers pick and pack products. The usual labour-intensive cycle-counting process is automated by the warehouse management system, as it continually updates the product information in the warehouse, from what is picked to what is held in a slot or bin location. Full inventory cycle counts, which can use many man-hours of labour and take days to complete also become redundant. The confidence in inventory accuracy does away with the need to schedule a large yearly inventory count. Finally, with a softare interface this data can update the host ERP (like SAP, Infor, Sage, Navision etc) and provide company-wide visibility. Updating the host system will enhance the efficiency of real-time transactions and improve the business processes that rely on timely and accurate inventory data.

One can only begin to analyze inventory numbers and movements effectively with an inventory control system. Accuracy rates in warehouses without any form of automated tracking can be as low as 70%. Automation can bring product count accuracy to 99.8%+ levels.

Inventory control should be of particular interest to businesses that are growing rapidly and have a much more critical view of cash-flow. During bursts in production, there is a tendency to over-stock and this ties up cash in inventory. Inventory positions should be carefully examined in any cash-flow analysis. Even a low-cost, entry-level warehouse management system can begin to de-risk a company’s exposure to excessive labour costs and inventory. It is a given that most small business owners do not want an excess of their company’s cash sitting in storage.

Another side potential side benefit may be a reduction in business insurance if excessive inventory can be eliminated and events such as dead inventory or expired inventory can be managed. Inventory control systems may also help reduce damages because items are properly located and put-away in well-marked or designated areas of the warehouse. The occurrence of theft may also be reduced if staff realize that a tight process exists for monitoring the whereabouts of inventory and that missing items may be detected quickly.

In summary, inventory is subject to risk exposures of various kinds and in itself carries a cash value which needs to be monitored like any other corporate asset. An inventory control system may help to mitigate this risk and bring greater certainty overall to the business.

Source by Irvin Kovar

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