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Top 5 inventory management challenges for manufacturers

Get expert advice on the technologies, best practices and organizational change management needed to master the most common inventory management problems.

Inventory management challenges are a vexing problem for manufacturers as they can affect operational efficiency, customer satisfaction and revenue. But simply implementing inventory management software isn't necessarily a silver bullet.

While inventory management software is more sophisticated than ever, with inventory optimization capabilities such as segmenting inventory by profitability and calculating safety stocks down to the SKU, other challenges need to be addressed. Experts agree that effective inventory management goes hand in hand with demand forecasting, requiring a symbiosis of the people and systems in traditionally separate demand planning and inventory management departments.

Asked to identify the most common inventory management challenges, a handful of analysts, vendors and users coalesced around five themes, all of which relate to putting quality information in the hands of the most knowledgeable people at the right time. They also offered tips and advice for overcoming these inventory management challenges.

1. Integrating demand planning and inventory planning

People, systems and databases must all talk to each other. A formal sales and operations planning (S&OP) strategy with support software such as dashboards or full-blown S&P software suites can help. You might also want to create a demand and supply planning organization overseen by someone in the executive suite.

Integrating specialized demand and inventory planning software together and with related systems, such as ERP, is an opportunity and a need that the industry doesn't always adequately address. Vendors admit they spend significant time integrating their software into existing supply chain management systems.

"You want one tool that's going to be able to speak every group's language," said Noha Tohamy, a vice president at research firm Gartner.

2. Training users of demand planning and inventory management software

For some people, forecasting is an entirely new discipline. Companies that have successfully implemented inventory management software stress the importance of teaching the underlying methodologies before handing out the software.

Webinars, slideshows and classroom instruction can spread the gospel about your company's new planning processes. A train-the-trainer approach is one of the quickest, least-expensive ways to make people comfortable with inventory management software.

Ease of use should be high on your list of criteria when deciding between vendors, but don't ask people to take on too much at once. Let them start with the basic functions and build from there.

3. Change management: Dumping those old spreadsheets and paper

Inventory managers may be reluctant to give up their old familiar ways. You might have to forbid the use of spreadsheets, for example, to get people to switch to new inventory management software. To ease the transition and build trust, sit down with your users and demonstrate the software's benefits. Ironically, it might help to simulate the software in Microsoft Excel for those who have never made the transition from paper.

Executive champions on the IT and business sides and easy-to-use software can also further buy-in, which can enable the cultural change needed to master inventory management challenges.

4. Standardizing data

Some companies have been tripped up by having too many definitions for the same data, such as purchase orders and product categories. Standardizing data definitions is a necessary step in building an architecture that works across all departments and locations.

You might also need to clean up the sales and inventory data coming into the system, perhaps by reformatting legacy data or writing an application that can collect the information you need.

5. Choosing software that suits your business

The unique nature of your demand will determine which components you need. Goods can be expensive to ship overseas and delays can squash revenue gains, so a well-honed demand planning tool updated with real-time sales numbers is essential to address such inventory management challenges. But if your sales typically come from large deals, inventory management software merits more attention.

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