Manufacturing and distribution companies have a love/hate relationship with inventory. They need it to make things or ship to customers … but it costs a lot of money to have too much of it. Best in class businesses maintain just the right inventory at just the right time. Companies that are struggling with inventory can find their business out of control. Looking at Business Central inventory management might be something you feel you need to do. In this blog I want to jump into some of the ways you might be suffering today, and a few notes about how a proper inventory management system will help.
If your business is considering adding Microsoft Dynamics 365 for the Business Central Inventory control system - then this article can help you see if it is the right solution and this is the right time to get it.
If you are already in crisis mode - it's definitely time for Business Central Inventory management
Here are some things to look for to see if you have an inventory control crisis.
- Do you have a large number of obsolete items in inventory? These would be products you cannot use or sell because they were purchased or fabricated in too high a quantity. Can you be sure your staff aren't buying more of this kind of obsolete items? Check and see when the last time was that they were purchased. You may be unpleasantly shocked.
- Are your staff rescheduling work because items are missing that are required? This could mean that the work is rescheduled in time to not be too disruptive - or it could mean a machine literally can't run because materials are missing.
- Do you have high levels of cash tied up in inventory that you’re not moving? This is best measured with a good inventory management system, like Business Central Inventory management. If you aren't even sure how much value of inventory you have - you probably have a crisis.
- Are your safety stock levels too high? Your purchasing and planning team are buying inventory all the time. If you walk past it and think to yourself "why do we have so much crap" then you probably have too high a safety stock level. If your current system doesn't have the safety stock feature - that doesn't mean you don't have safety stock. This can be an amount your staff keep "in their head" and thus is even more out of control.
- Is your delivery performance suffering? If you are occasionally failing to deliver products on time because you have inventory stock outs - then it is costing you money and customer good-will having this issue. This is probably the biggest and most dangerous problem of them all.
- Do you have an unacceptably low inventory turns? This is similar to the question about high levels of cash in inventory. Your turns are the total amount of inventory you use or sell in a year, divided by the current amount on hand. If you use $4M of inventory every year, and have $1M on hand at any one time - that is 4 turns. By the way - 4 turns are not good. You need to get Business Central Inventory Control up and running as soon as you can.
How can you tell if these are problems…
... to tell if these problems exist you need an inventory control system, or you need to spend a fairly significant amount of time trying to research your existing inventory to get answers. Without a proper system (like Business Central inventory management) you will have to rely on a lot of error prone Excel sheets and maybe Access databases if you are really ambitious.
- Measure your delivery performance. You do this by tracking your original due date against your actual ship date with a delivery performance report. This is inherent in Business Central inventory as your promised delivery date and the actual delivery date are tracked on each order and archived order. You can easily run a report against these to get your own delivery performance.
- Measure your inventory turns (by item category). This will involve figuring how much inventory you use over a year, and how much you have in stock. It's best to focus on the different types of inventory. For instance, your finished goods; or your raw materials; or even different sub-categories of raw materials. Ensure that no one category has an unusually low (bad) level of turns.
- Measure your item usage and calculate the weekly standard deviation. I have a good blog post on using OData to pull data out of Business Central inventory just for this purpose.
- Analyze your safety stock levels (are they too high or too low - accounting for variability). This builds on the item usage analysis you should do in the previous step.
- Measure your cash tied up in inventory (over time). Do some analysis of what your inventory levels are at different points in time. Point in time inventory analysis is a little tricky to do - so you may want to use Power BI or other analytical tools to handle that.
- Track every time work is rescheduled and categorize it. This is a LEAN/Six Sigma methodology that I highly recommend - is super easy to do - and virtually nobody does. Give your employees a sheet printed in Word with 5 to 6 categories across the top and columns down the page. They tally (marks on the page to track the times) every time work is rescheduled. After a few weeks you'll see one category leads the others. I would put money on it being inventory management.
- Categories might be machine breakdown, employee absence, inventory missing etc…
- Measure your obsolete inventory. Measure how many items have been in inventory and not transacted for long periods of time. This is made much easier with Business Central inventory through the OData analysis I mentioned earlier. Business Central tracks every in and out of inventory, and keeps track of how many are actually remaining and from when. It's fairly easy to dump this data into Excel and do a quick analysis - or write a Power BI report to track it.
Hopefully this article helps you understand Business Central inventory, and how if you are experiencing inventory control problems it might be the right product to help you get some control. Of course Business Central has lots of other modules too, like manufacturing, finance, logistics, sales and purchasing. All of these in combination make it a great solution for manufacturing or distribution companies.
You may want to view my Linked In article on Business Central Inventory with a WHMS or view our YouTube channel where we constantly add lots of great videos on Business Central inventory and other subjects.
Inventory Control Video
Watch our webinar on Inventory Control if you're interested in hearing more about this subject.
If you need help with inventory control, give us a call at: (519) 585-7524 x.45 or contact our team, we are excited to talk with you soon!