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Sharpening Your Inventory Management Strategy, Part I

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Sharpening Your Inventory Management Strategy, Part I

Has your company’s inventory management approach kept up with the on-demand, “want it now” fulfillment and delivery environment…or not?

 

As the middlemen who orchestrate the process of getting products and services from their suppliers and out to the customers who need those goods, wholesale distributors are constantly dealing with inventory management challenges. On a mission to get the right product to the right place and at the right time, these companies grapple with out-of-stock situations, overstock, obsolescence, and myriad other inventory issues on a regular basis.

These challenges aren’t new, but the quick uptick in B2B e-commerce sales has put them in a brighter spotlight. In a world where consumers are accustomed to tapping “place order” and having the goods show up on their doorsteps within a day or two, B2B customers expect the same (or better). Not willing to wait around an extra day or two for a shipment to “show up” at the jobsite, these customers want to be able to see available inventory, track their orders, and get accurate delivery times.

Being able to fulfill those requires good inventory management—a process that incorporates inventory receiving, ordering, stocking, order fulfillment, compliance labeling, tracking, shipping, and even the management of customer service requests. Done right, inventory management helps electrical distributors reduce inventory carrying costs, decrease dreaded stock-outs, avoid overstocks, and stay on top of product obsolescence.

“Achieving optimal inventory levels is a delicate balance,” Oracle NetSuite points out in How to Pick an Inventory Management Solution that Scales with Your Business. “Buy too little and you wind up with stock-outs and unhappy customers; procure too much and your carrying costs and obsolete inventory levels go up.”

Intent on running leaner operations that aren’t saddled down with excess inventory or plagued by wasteful processes, more distributors are examining their inventory turnover and coming up with good management strategies that satisfy customer demands, the company points out. As a result, they’re either reducing or completely eliminating these inventory-related pain points:

  • High inventory costs
  • Uncertainty due to fluctuations in demand
  • Risk of loss
  • Stock-outs
  • Inventory turnover rates
  • Unnecessary order duplications
  • High levels of working capital tied up in inventory
  • Excessive storage costs
  • Imbalanced shipment lead times
  • Lost customers
  • Loss of materials due to carelessness or pilferage

Combined, these problems can add up to substantial financial losses. “A critical aspect of supply chain management, good inventory management extends from the point of origin (e.g., the manufacturing plant or distribution center) to the end-user,” Oracle NetSuite concludes. “Left up to chance, it can either tie up cash and hurt organizational profits, or it can save companies money while also improving their profits and bottom lines.”

Stocking as a Competitive Advantage

As corporate strategy and business development manager for BHS, Inc., a St. Louis based maker of motive power and material handling solutions, Kelly Buatte sees firsthand the struggles that distributors face on the inventory management front. She also understands the value of putting time, effort, and resources into developing a viable inventory strategy. “If you don’t have the materials on hand in your warehouse, you can’t supply your customers,” says Buatte, “and they’ll go in search of a source that does have what they’re looking for.”

It sounds elementary enough, and especially for a company whose very livelihood depends on its ability to fulfill customer orders accurately and quickly. However, a lot of variables come into play—many of which threaten to derail even the best-laid inventory management strategies. A key supplier that’s been negatively impacted by the tariff situation or other supply chain disruption, for example, can turn into a liability when an electrical contractor has an urgent need for a specific piece of equipment.

Lean inventory tactics can also stand in the way of a good stocking strategy. The electrical distributor that lives and dies by the just-in-time (JIT) philosophy, for example, may have created a culture centered on stocking just enough product to meet customer demand. When an in-demand product is out of stock—forcing the distributor to scramble to fulfill orders—that company’s carry costs increase while its customer satisfaction levels decrease (a dangerous combination in today’s “want it now” delivery environment).

As a manufacturer that works closely with electrical distributors, BHS has seen many of those companies shift their inventory management strategies over the last few years. The manufacturer itself has also sharpened its own pencil in that area, having recently implemented an enterprise resource planning (ERP) system to run its end-to-end manufacturing processes. “We took an open-source program and modified it based on our processes,” says Buatte. “It helps with our inventory management, and ensures that our distributors have what they need when they need it.”

To distributors that want to improve their own inventory management practices, Buatte says a good first step is to figure out where the pain points are in your current setup. If you’re using manual processes and spreadsheets, for example, then a unified system that can be used to share inventory data across the company (and, out to suppliers and customers) will be a big improvement.

“Figure out what inventory-related issues are causing the biggest headaches (e.g., stockouts, overstocks, poor forecasting, etc.) and which processes can be improved,” says Buatte. “Shed some light on the real problems and then look around at what’s available on the market—or, what other electrical distributors are using—to help ease those headaches.”

Stock is King

As inventory management issues continue to challenge B2B distributors to do a better job of stocking inventory and forecasting demand, Rock Kuchenmeister, general manager at K/E Electric Supply Co., in Mt. Clemens, Mich., offers them this sage piece of advice:  Stock is still king.

“Everyone wants stuff right now. Commercial contractors can’t wait until this afternoon, let alone tomorrow or the next day, to get their orders,” says Kuchenmeister, who sees inventory as a potential competitive advantage for the companies that are willing to invest in it.

“A lot of times a distributor will get the order simply because it has the stock. In fact, a company may wind up getting a 10-line order just because it has just one of the items that the customer is looking for.”

For K/E Electric, deciding exactly what to stock and how much of it to keep on hand is directly related to the amount of physical space it has to store those goods. “Inventory is a struggle and it’s becoming even more of a problem because of the squeeze on square footage in our physical locations,” says Kuchenmeister. “As recently as this year, we’ve had to make some difficult decisions about whether to bring in more inventory and/or whether to take on a job that a customer was offering us.”

Even with those tough decisions to make, K/E Electric is one electrical distributor that believes in the value of stocking up—even during market slowdowns. With some economists predicting a possible downturn later this year or in 2020, now is the time to shore up an inventory management strategy that will prevail if and when sales taper off.

“When a recession hits, the first thing a lot of distributors do is reduce their inventories,” says Kuchenmeister. “That is the exact opposite of what you want to do. You want to actually increase your inventory because stock is even more ‘king’ during downturns.”

 

Sharpening Your Inventory Management Strategy, Part II

Here are nine tips that electrical distributors can use to get their inventory management approaches on track right now.

Read more

 

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Bridget McCrea  is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.

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