The system was designed by Toyota and applied to its car manufacturing process. Just-in-time inventory is a system that forecasts demand and keeps just enough inventory on hand to cover that demand, which cuts down on excess and increases cash on hand. In this article, we'll look at how just-in-time inventory management can help you keep customers happy while holding on to cash, talk about the importance of demand forecasting for inventory management, and examine how much of the inventory process is science versus art. Keeping just enough inventory on hand to cover demand means you have more of your company's value in cash, increasing your liquid assets and giving you access to more investing options. Inventory is more liquid than fixed assets (your office equipment) and goodwill (your brand value). According to AccountingTools, inventory is less liquid than cash, marketable securities, and accounts receivable. In finance, the liquidity of an asset refers to how easily it can be converted into cash. Inventory is, relatively speaking, illiquid. Just-in-time inventory seeks to solve this problem by keeping enough stock on hand at all times-but just barely. If you're on the selling end, more often than not there is no “back." What's out on the floor is what's in stock, and this question means you've run out of something.įor small retailers, the revenue that walks out the door with an unhappy customer can be the difference between life and death. We've all heard (or used) this customer question. Hire an expert to look at all aspects of your supply chain management and production processes.Ĭhartand says: “An outside perspective can help you assess your businesses processes and find ways to eliminate waste and improve how you do business.“I can't find this in my size/color/preferred Disney character-are there any more in the back?" Just-in-time inventory management is just one step in increasing your company’s operational efficiency. Get outside help on managing your supply chain But if you have a quality product and good relationship with them, you’ll retain their loyalty.” 3. “You might feel you’ll lose a client if you can’t deliver on the spot. Be transparent with your customersīe upfront about how you manage inventory and your lead-time requirements to meet their orders. “It also helps to have multiple suppliers in nearby locations to reduce shipping time and costs,” Chartrand says. The goal is to work with companies you can rely on to deliver on time and that will go the extra mile to meet a tight schedule. Work to build strong, long-term relationships with suppliers. Here are some other tips on how to implement just-in-time inventory management. Larger businesses should work to sync their computer systems with those of suppliers who can then directly monitor inventory levels at factories, distribution centres or stores. “Using electronic data interchange (EDI) and bar code scanning can help eliminate data entry errors.” “Inventory miscounts are also common at the receiving and order fulfillment stage, especially if you’re working manually,” he says. They allows a seller to know what's in and what's not in stock-but, most importantly, what sells. Also known as SKUs (pronounced “skews”), they are unique ID codes that you assign to every item on sale. Most businesses now use a system of stock keeping units. “At the minimum, you need a system that alerts you to reduced inventory levels so you can replenish them.” “You should automate as much as possible, but not all small businesses have the cash to buy sophisticated inventory technology,” Chartrand says. There are a variety of options available to help you manage inventory, ranging from a fully integrated Enterprise Resource Planning (ERP) systems to more affordable software products. The good news is that technology can solve these problems. If you’re still handling inventory manually, chances are you’re prone to errors and poor forecasts and have no means to measure supply and demand. “You have to avoid running out of stock and upsetting your customers, while also minimizing your inventory costs.” Technology can be a big help “It’s a real balancing act,” says Chartrand, who advises clients in the Ottawa region. The key to just-in-time inventory management is rigorously monitoring your use of supplies and timing replacement deliveries when they are needed, says BDC Consultant Guy Chartrand, an operational efficiency expert. Growth & Transition Capital financing solutions Kauffman Fellows Program Partial Scholarship Venture Capital Catalyst Initiative (VCCI) Industrial, Clean and Energy Technology (ICE) Venture Fund
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