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Driving Business Performance through Improved Inventory Management – In a Down Economy

In this economy, businesses are looking for new ways to improve efficiencies and save money over the long haul.  For many businesses, inventory management (particularly spare parts inventory) is one of the last bastions of opportunity.

Dan Floen, President, Professional Materials Management (PM2)

In these tough economic times, the pressure on businesses has never been greater to reduce operating costs, improve efficiencies, and increase the dollars going to the bottom line.

In previous weeks, we’ve discussed the value of measuring your total cost of inventory management baseline.  We pointed out three key cost factors that drive this measurement.  Once again, they are:

  1. Inventory Cost
  2. Process Cost
  3. Procurement Cost

Knowing your total cost of inventory management baseline number and understanding the costs that go into it are the first step in developing your strategy for improvement. 

So, let’s fast forward a bit and assume that you’ve already measured your total cost of inventory management baseline.   What now? 

To me, the most natural next question is, “What could my total cost of inventory management be if I applied new management strategies, process enhancements, and/or new technologies to the mix?”  To answer this question, you will need to do some fact finding, very likely from outside organizations.  These organizations may be the same ones that you hire to implement various solutions, but for right now, you need to know what solutions you have available to you and what their cost saving impact is estimated to be.  I would start by soliciting input from the market in three key inventory solution areas:

  1. Computerized Inventory Management Software (CMMS)
  2. Inventory Database Development
  3. Inventory Management Hardware (Barcode scanners, RFID, etc.)

Computerized Materials Management Software (CMMS)
A fully functioning computerized materials management software package can mean quantum leaps for your daily efficiency and cost containment initiatives.  It’s always a good idea to ask an expert with experience in several different CMMS packages to weigh the options and features of each.  Once you’ve narrowed the field of CMMS providers to consider, invite the short list of providers to give you a tour of their program either in person or via a web conference.

Inventory Database Development
Given the advanced technology that is all around us every day, you might expect that all companies have a fully automated inventory management system in place.  On the contrary, we see many, many inventory management environments that are completely manual.  Believe it or not, Cardex inventory management systems are still alive today.  Imagine the process cost that goes into the day-to-day management of a completely manual work environment.  How might a high quality inventory database impact your business?  Measure it.

Remember too, that not even the best CMMS in the world can help you manage your inventory effectively if the database loaded into the system is worthless.  It pays to do this correctly; up front.    

Inventory Management Hardware
Hardware technology has advanced very quickly in recent years, particularly in the area of RFID (Radio Frequency IDentification).  Of course, barcode scanning technology has been around for quite some time.  Check with your short list of database and CMMS providers.  Some CMMS providers also integrate and sell various hardware along with the software they provide.  Again, it’s always a good idea to consult with a materials management expert to talk about your specific needs and objectives.  He can help you to develop a database, hardware, and software solution tailored specifically for your company.

As I see it, there are two ways to ride out a down economy; sell more and/or spend less.  If you can advance your inventory management environment to the 21st century, you will definitely spend less.  Done right, you may also make yourself more competitive on your finished goods, leading to potentially more sales.

Don’t wait.  Start today!    
PM2 stands ready to assist you with any or all of your inventory management challenges.   Just give us a call at (813) 249-0834 or visit our website at  

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