Five Keys to Inventory and Supply-Chain Management

September 1, 2016

Inventory management has a profound effect on jobsite operations. If proper inventory-management techniques are not followed, it can cause costly project delays. Following are 5 tips from National Insulation Association (NIA) distributor members on how to ensure proper inventory management and a smooth inventory supply chain.

1. Forecast-Based Purchasing

Proper inventory levels can present somewhat of a “Goldilocks and the 3 Bears” issue for distributors—too much inventory can tie up excessive funds and hinder business operations, while too little can leave businesses unable to meet their customers’ needs. To find the inventory level that is “just right,” businesses should rely on data from the sales side of their business. Past purchasing history can also be a good indication of what will be needed in the future and can help guide purchasing.

There are a few different approaches for inventory purchasing depending on the size of the company and the strategy it prefers to embrace. Some companies buy inventory for the day-to-day business—this may work for companies that do not have the budget to invest in a large amount of inventory. As Rick Campbell, Director of Operations for General Insulation Company, Inc. noted, it is important to “monitor the turns and track inventory very closely so you’re identifying your demands and your needs.”

Some distributors may even take the strategy of waiting until a customer places an order to procure the necessary materials. This approach, however, does have certain risks. If a supplier has changed its lead time, it could cause an unexpected delay that will leave customers without their supplies and potentially disrupt project schedules.

Alternatively, some distributors may take the approach of stocking large amounts of inventory—strategizing that their ability to allow customers to fulfill their emergency project needs on an as-needed basis will set them apart from the competition. In this approach, the company realizes that product may not sell for months or even a year—but hopes that the strategy will pay off in customer loyalty.

Dana Vlk, Vice President of Marketing for Distribution International, Inc. affirms that oftentimes, a combination of purchasing methods can be used to achieve the ideal inventory balance.

2. Standardized Policies and Procedures

Establishing policies and procedures and enforcing those policies is crucial to the success of inventory and supply management. Continuity in procedures helps ensure a system of checks and balances and limits the chance of errors. For example, at General Insulation Company’s warehouse, if a person pulls a pick ticket (i.e., a list of goods being delivered) for a customer, a different employee has to check it. Similarly, all deliveries are marked before transit so they are aware of what is inside and where it is going. These types of redundancies can help eliminate human error and prevent issues that will affect the customer. In this area, consistency is key; while there can be a trial period in which new policies are tested and altered for better results, once the policy is established, it should be strictly enforced—this will eliminate confusion and limit errors.

Standardized employee orientations and consistency in following outlined rules across branches are also important to continued smooth operations—a patchwork of different policies will increase the chance for errors and mismanagement. At the headquarter or corporate level, it is important to be engaged with the branches to ensure that everyone is on the same page, and to take steps if it becomes clear that policies are not being followed.

3. Training and Communication

Training and communication play an important role in ensuring policies and procedures are followed, and that employees understand exactly why they are important. For training purposes, a basic level of knowledge about the products is critical. Campbell noted that part of their training includes ensuring all employees view NIA’s Mechanical Insulation Installation Video Series to learn more about mechanical insulation products and accessories.

For new employees, consider having a monthly check-in where supervisors can note what areas have been covered and what areas may still need review—this ensures both that training is being covered and that an employee is gaining an understanding of the processes necessary to properly manage inventory. Additionally, companies with multiple locations should ensure they are communicating any corporate policies clearly to branch divisions. They should also work with managers to ensure all communications are being shared with branch employees so there is continuity across branch policies. A short 5–10 minute daily or weekly meeting can help get everyone on the same page to work cohesively and make sure operations go smoothly.

4. Inventory Accuracy

Ultimately, inventory represents fulfillment of customers’ future orders. Thus, ensuring your company’s inventory is as accurate as possible prevents potential errors that will affect customers and their projects. Dave Eckelbarger, Vice President of Supply Chain for Distribution International, Inc., commented, “I have found that those companies that are the most customer-service oriented take their inventory counting the most seriously.” Best practices for inventory accuracy include complete physical inventories (i.e., accounting for every product in the warehouse) on an annual or quarterly basis, as well as cycle counting on a more frequent basis for the most popular or “A” items.

Many companies rely on software for real-time inventory tracking, enabling them to have an electronic record of inventory that can be accessed at all times. Failing to enter products into the system means inventory will be inaccurate—so it is important to place a priority on maintaining accurate information. Additionally, it is important to closely monitor how often a product is leaving a warehouse and how long it takes to replenish it—if a product is selling within 5 days but it only takes 5 days to replace, there is no need to have 2 or 3 weeks’ worth on hand. An inventory-management system can help track this information and help identify needs on a daily basis.

5. Accountability

There will always be a degree of uncertainty when it comes to inventory levels. Even solid forecasts based on sales data may fall short of actual sales. Appointing someone who is accountable for how many dollars are going into inventory on any given day is crucial to proper inventory management. One of the reasons this is so important is due to the types of changes that can occur on the suppliers’ end that affect inventory pricing and lead times. It is not uncommon for a business to realize—sometimes months after the fact—that a vendor has changed costs on a product and they have been paying a different amount for months. Or, they may be surprised when an order shows up late only to find the vendor communicated a change in lead time 2 months prior. Assigning someone to keep track of these circumstances is crucial to inventory control.

For Andrew Metzler, Inventory Manager of BayView Industries of Green Bay Inc., a member of the Bay Family of Companies, “accountability is crucial to ongoing inventory management.” Part of this process is closely monitoring the numbers and ensuring that orders match demand and historical sales. It is common for headquarters to inquire about a branch’s thought process if order numbers do not seem to match up with historical data—the vast majority of the time, the person placing the order has a reason for the discrepancy. In the other instances, this close level of accountability allows the company to prevent ordering errors that can cost money and disrupt inventory management.

Key Points

Prioritizing forecast-based purchasing, standardized policies and procedures, training and communication, inventory accuracy, and accountability will help keep inventory at appropriate levels, meet customer demand, and keep job sites running smoothly.

A special thanks to Rick Campbell, Director of Operations for General Insulation Company, Inc.; Dave Eckelbarger, Vice President of Supply Chain for Distribution International, Inc.; Andrew Metzler, Inventory Manager of BayView Industries of Green Bay Inc., a member of the Bay Family of Companies; and Dana Vlk, Vice President of Marketing for Distribution International, Inc., for contributing their expertise to this article.

 

 

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