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More Inventory Content
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Table of Contents
More Inventory Content
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The inventory position is the dedicated place in the warehouse. Inventory positioning assists in systematically organizing inventory and effectively using space so that the demanding inventory can be effortlessly accessed for quick order fulfillment. The following article describes inventory position, its importance, its examples, how to position it, its formula, and more.
What Is The Inventory Position?
When managing inventory, it is vital to understand what inventory position is. Inventory position states where and how your stock is held in the warehouse’s racks and bins.
Inventory positioning implies how a business judiciously manages the locality of its inventory—in the supply chain and its physical location. This aims to enhance economic efficiency and optimally fulfill the customers’ needs.
In other words, it refers to carefully placing different items in the product line in regional, plant, or field warehouses. Since inventory positioning influences the facility location assessment, it should be considered in the logistics strategy.
It is important to consider inventory position because a business deals with the expenses and limitations of supply chain preferences with the requirement of its customers. Meticulous planning can decrease business costs while enhancing the quality of service and speed.
Inventory position eliminates your confusion on where to store your inventory. The influencing factors are demand forecasts, unit economics, and customer expectations. Various business models may demand different approaches. However, most businesses that manage physical goods can benefit from inventory positioning to simplify operations, particularly during growth periods.
Why Is Inventory Positioning Important?
Usually, inventory position impacts order processing time and supply chain. Let’s go through why it is essential to determine your inventory position in the overall supply chain and warehouse
The foremost advantage of monitoring inventory position is the ease of access. After knowing the location of your product, you can conveniently and timely process them. This saves not only time but also costs and effort. Moreover, the knowledge about the location of your inventory in the supply chain assists you in processing orders in specific areas.
Reduce order-to-ship time
Understanding the inventory position can assist you in accelerating the order fulfillment process. This is achieved by decreasing the picking and packaging time, allowing you to ship out quicker. Furthermore, knowing the inventory’s location in the supply chain can assist you in precisely targeting customers and delivering products to them sooner. Hence, inventory positioning indirectly guarantees customer satisfaction without any hassles.
You can effectively track your inventory after knowing the inventory position. It also helps you to prevent stock-out situations that can deter customers. If you aim to quickly get rid of dead stock sooner and ultimately save on your inventory handling expenses, you should consider inventory positioning.
The location and way you store your goods influence your operating expenses, operational efficiency, and potential to fulfill customers’ expectations. This holds true both in terms of supply chain and storage.
Physically tracking your products helps you to easily discover and access them at the warehouse level. Consequently, it boosts the order fulfillment speed. It also decreases the odds of existing goods being forgotten or misplaced. So, there will be reduced wastage and reduced average inventory holding expenditures.
Fulfillment of customers' expectations
An inventory position on a supply chain level decreases lead times. It, therefore, helps an organization better meet its customers’ demands. Usually, clients deter from an organization if they perceive stockouts issues. Inventory positioning avoids stockouts that frustrate clients and provide a satisfactory customer experience by guaranteeing that the product is available in the required channels and locations. The timely and easy availability of products accurately meets customers’ expectations.
The key ways in which an inventory position proves to be valuable are:
- Inventory positioning offers safety stocks that are held to counterbalance any modifications in supply and demand. Hence, it avoids stock-outs.
- It enhances customer service standards by fulfilling the marketing department’s function. Specifically, if the demand is created, inventory should be accessible to fulfill it.
- The costs of units are at their lowest when production happens in long runs with constant volumes being offered by inventory positioning.
- In operations management, inventory position alleviates uncertainties about lead time and demand. It facilitates proper planning to handle unforeseen logistical problems.
- Inventory positioning balances price fluctuations to decrease the influence of supplier price increments during high inflation.
- An effective inventory positioning helps an organization to accurately plan against emergencies that may interrupt operations like floods, fires, labour disputes, and other natural calamities.
Examples Of Inventory Position
Suppose a newspaper vendor collects newspapers from an agency and then delivers them to the customers. Here, the place where newspapers are temporarily held before the vendor picks them up for delivery is an example of an inventory position. This place assists in quick order fulfillment. Note that in this example, only the newspapers are considered inventory, whereas the vehicle is regarded as an asset.
A cookie manufacturer may convey the packets of ready-to-sell cookies, the semi-finished stockpiles of cookies not yet packed or cooled, and cookies whose quality check is pending. All such cookies are temporarily held in one place before being finally delivered to the customers. So, this place is the inventory position.
How To Position Your Inventory?
The following methods help you accurately position your inventory:
Accessibility of high-volume products
The inventory can be positioned so that the products that are used the most and expected to be in demand must be made available for easy access. Consequently, it can be rapidly recognized, picked, packed, and shipped. This method enables organizations to accelerate order fulfilment for products with the best chance of getting sold.
You can use this method for other products in a sequence of demand and sales volumes. The highest selling products can be positioned in a more accessible location. On the other hand, lower-selling items can be stored in more hard-to-reach locations. In this way, inventory positioning facilitates the optimal use of the available storage space.
This method perfectly organizes goods. In rare cases when the lower demand products are being ordered, the employees will immediately know their location by lining up the demand of that product with a dedicated site in the warehouse
Storing larger SKUs on lower shelves
Keeping the bulkiest SKUs at the top or back of your warehouse racks is meaningless. They must not be positioned on shelves that are difficult to access. Their hefty weight can let the shelves lose their strength and surrender to the pressure created by other large objects. Larger SKUs must be organised close to the ground so that they can be safely and efficiently accessed.
For hassle-free inventory positioning, this method also implies changing the positioning for bulky SKUs depending on their popularity. If they are frequently ordered, ensure they are stored in an easily accessible position to be instantly dispatched when needed.
The general rule for storing heavy items is to keep them in an accessible location and as close as possible to the transit bay for hassle-free dispatch.
Forecasting demand for precise inventory planning
For effective inventory positioning, it is vital to estimate product demand depending on historical patterns or specific events. If there is a wrong estimation of future demand, there can be a shortage and delays in delivery. This can lead to a poor customer experience.
The incorrect estimation of demand can also lead to an inventory surplus. Ultimately, this leads to considerably higher operational and storage costs. This can negatively influence the profit margins of an organization.
Many organizations try to implement their stock replenishment strategy to avoid such issues depending on historical forecasting. The hope behind this is that the pattern will iterate. However, the strategy must be wisely implemented because markets are dynamic. So, the forecasting must be done considering the prevailing factors.
Inventory Positioning Strategy
The critical factor determining an organization’s inventory positioning strategy is the kind of supply chain it adopts. This implies choosing the demand and order frequency. For example, during Christmas festive days, for selling Christmas trees, the whole stock should be planned for customers who would buy and carry these trees home on the same day. On the other hand, when selling commercial jets to airlines, the orders are occasionally placed before manufacturing.
From an inventory positioning viewpoint, three main types of inventory positioning strategy are,
i. Push supply chains strategy
ii. Pull supply chains strategy
iii. Hybrid (push-pull) chains strategy
i. Push supply chains strategy
In this inventory positioning strategy, companies predict demand and generate or buy the inventory to be sold before an actual sale or order. For proper inventory positioning, customers in this strategy anticipate receiving their purchases in a short period. This period is quite faster than that for manufacturing and delivering the items.
Most consumer packaged goods are positioned on the retail shelves organised as per this strategy.
ii. Pull supply chains strategy
In this strategy, production is aligned according to customer demands and the size of orders. Usually, distribution is targeted to the client. It, therefore, eliminates dependency on retail stores. Moreover, the time required to manufacture a product is equal to or less than the duration between order placement and shipment.
This strategy looks after positioning inventory on hand to drive up the business costs significantly. So, it is more suitable for an expensive product.
Example of this inventory positioning strategy: Commercial aircraft production. Usually, jets’ price can be millions of dollars. Also, the cost of seats, cargo, and paint jobs are high because they are tailored for a particular airline. Therefore, commercial aircraft production is an example of a pull supply chain strategy.
iii. Hybrid (push-pull) supply chains strategy
This strategy runs partly by orders and partly by forecasting. It works on the concept that the companies should be ready for the customer demand; however, those customers won’t essentially require their items immediately. This strategy keeps all necessary components for proper inventory positioning whenever needed.
For example, a car manufacturer cannot supply all dealers with all models of cars in all colours and features. However, it makes cars available for a few on-site purchases and test drives. Moreover, the need for customization can drive this strategy.
After the business has determined its optimal strategy for inventory position, it needs to choose where to keep its inventory (geographically). The number of warehouses and factories needed, location, and transportation routes required is all components of inventory positioning strategy.
Inventory Position Formula
In operations management, inventory position may be used to know the total amount of inventory a store holds from the perspective of inventory accounting. Here is the inventory position formula to calculate the inventory position
Inventory position = (on-hand inventory + on-order inventory) – backorders
Inventory position plays a crucial role in systematically organising the inventory. It facilitates efficient order fulfillment and makes the most of the physical location in the supply chain for easy access to demanding inventory. Inventory positioning reduces a business’ expenditure, improves its quality of service, and most importantly, fulfils the customers’ expectations in the best possible way.
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The complete form of MRO inventory is maintenance, repair, and operation inventory. This taxonomy covers all the supplies a business requires for its production procedure that don’t become a component of an end product. In other words, MRO inventories refer to any materials, equipment, and supplies utilised in the production process that doesn’t belong to the finished goods inventory.
MRO inventory can include technology, upkeep supplies, and safety equipment. Note that MRO inventory may not be associated with the fundamental function of your business. However, ignoring them leads to poor customer experience, downtime, and incompetent operations.
The optimal inventory levels are the ideal quantities of products that a fulfillment center(s) should have at any specific time. An organisation can optimise inventory levels by decreasing the risk of typical inventory issues ranging from high storage costs to out-of-stock products. There are several reasons why most businesses focus on maintaining optimal inventory levels. Excess inventory can demand high capital, stay on shelves for long, or eventually be unsellable. Too little stock leads to backorders and stockouts and poor customer experience.
To maintain optimal inventory levels, a few factors to consider are,
- It will be unique for every brand.
- Optimal inventory levels can vary rapidly as your organization grows.
- Every SKU may need a unique optimal inventory level as per the demand.
The central role of inventory in supply chain management is to maintain the balance of demand and supply. Organizations must manage supplier exchanges and customer demands to effectively handle the forward and reverse movements in the supply chain. So, the inventory allows an organization to maintain a balance between meeting the needs of customers (usually challenging to forecast accurately) and maintaining enough supply of goods.
JIT (Just-in-time production) strategy is a business strategy wherein a manufacturer manufactures each item according to its orders instead of retaining many excess things on hand. The essential advantage of using this strategy is that it enables businesses to ascertain that there is always purchase for any item manufacturer. Therefore, it ensures inventories will be low if no customers are willing to buy an item.
JIT strategy also implies that a low inventory figure on the balance sheet indicates a higher inventory turnover ratio that increases the company’s work efficiency.
- The inventory officer is accountable for creating the purchase orders, storing, receiving, issuing the goods, supervising the stock levels, and rendering the supplies out from the stock.
- They are engaged in preparing the inventories, retaining the stock records, and utilising advanced technologies for entering the logs.
- They oversee whether the goods are organized systematically or not in the stock location arrangement. Hence, they make sure whether the stock can be easily stored and accessed whenever required or not.
- They are accountable for inspecting the supply invoices with the purchase orders.
- They ensure that the stocks are physically protected within the warehouse.
- They authorise the periodic stock regularly by working closely with the allocated staff members.
Managing inventory levels is significant for a business to maximise its efficiency levels. Maintaining too little or too much inventory can compromise the company’s efficiency. Usually, business inventories must proportionately increase with the sales growth. Suppose, for example, a business forecasts that sales will rise by 25% in the coming year, and the inventory levels must increase by 25%. Organizations can adopt inventory management methods like back-ordering and Just in time shipping for effective inventory level management.