Businesses continue to cut back as the economy continues to worsen – seemingly every day. Cutting costs in a reasonable and smart manner is required; however, cost cutting alone rarely achieves success. As one of my mentors used to say, the best problem to have is a cost problem because it is resolvable and far more achievable within a reasonable timeframe than replacing lost customers, finding new customers, managing through a downturn in a cash-constrained environment etc. In today’s environment, as important as managing costs and focusing on customer service can be, it is no longer sufficient. Cash is king!
Cash is fundamental to the daily operations of any business, and in this downturn, it is ever-more critical, as credit lines are frozen, customers are extending payments, customers and suppliers are going out of business, sales are down etc. Therefore, managing cash becomes #1. There are many ways to manage cash; however, one of the critical ones is managing inventory, as inventory can be a significant cash hog. For every dollar sitting in the warehouse, it is one dollar that cannot be spent in running the business today. So, how best to manage inventory?
In my experience, it is often an underappreciated role / focus in businesses, as it is the block-and-tackle type execution that proves successful; instead of the exciting, latest fad/ program, software or event (such as the all-absorbing resort-location sales meeting). Thus, my first key point is to elevate the importance of inventory management. This can be achieved in several ways: in one successful example, a company assigned an Executive solely to Inventory; in another successful example, the CEO and VP of Operations incorporated inventory discussions into every day conversations and key metrics and elevated the significance; and lastly, in another company, the CFO spent a significant amount of time communicating the significance/importance while the COO made it the #1 priority. Inventory is not going to be the most exciting topic as it is almost exclusively focused on solid execution (many times requiring significant hard work, follow-up, coordination among functions and attention to detail), so it is absolutely critical that the importance is understood and prioritized.
Second, putting the right people in the right roles is key. This alone can many times be the “80” of the “80/20” in an inventory reduction program. Effective Inventory Planners/ Managers require a unique and, often times, rare combination of skills – typically, this role is at the center of many, competing and conflicting priorities, and so the person must be able to analyze and optimize amongst these competing priorities, be able to dig into and understand detail while remembering the big picture and top it off with an effective communication style to communicate the optimal solution (thus none of their counterparts will typically have a Silo-view win).
Third, just as important and part of making sure to put the right people in the right roles is the coordination and execution requirements of inventory management. The best of plans are useless if not executed. Whether this is performed through the Inventory Manager, the Operations Manager or someone else, the blocking and tackling required to ensure the i’s are dotted and the t’s are crossed in terms of inventory management is critical. This encompasses a daily process discipline and focus on execution – attention to detail, review for reasonableness, follow-up (including checking and double checking as appropriate), and extensive communication and coordination. When you find these superb executors in your organization, hang on to them! What could be more important than “making it happen”?
There are many other key points regarding this topic, which I’ll include in a future article on the topic; however, in the interim, a few other important nuances to remember include the following: 1) Involve Sales in the process, as a big element of inventory reduction is selling what is already in stock. 2) Make inventory prominent in key performance indicators/ metrics. 3) Focus your tools/ systems on supporting the people and process. 4) Recognize typically underappreciated efforts and people in terms of process discipline/ execution – catch people doing “right”. (Remember a genuine thank you can go a long way)