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Four Tactics for Effective Inventory Management

Posted by: Jeff Greenberg | Posted on: September 3, 2016 | 0 Comments

Inventory ManagementSeveral months ago we discussed some of the key strategies and tactics for optimizing your sourcing of materials, ingredients and packaging.   Especially early in a company’s life cycle, managing inventory of ingredients and packaging is one of the trickiest elements of the job.

The temptation is often to over-purchase.  It seems appealing at first because of the lower price per unit and the lower per-unit shipping cost.  But these savings can be quickly eroded by increased storage costs and spoilage.  On the other hand, not having enough on hand to meet a new customer’s order can lead to the loss of a sale.

So what should one do? Well, a few nuggets that drive our inventory management practices at the Kitchen Coop are summarized below:

 

  • Understand Supplier Lead Times – Once you have found that perfect supplier (your “A” team), with the best price and best quality, you need to understand their capabilities. How quickly can they respond to your needs?  How do they manage their own inventory?  Do they keep ample supplies of the item(s) you regularly need? Do they make to order?  You need to know the answers to these questions and, most of all, you need to know the supplier is going to be reliable when they tell you what the turn-around time will be.  Once you know what the supplier can provide and how long it takes them, you can plan properly.   And most important, you won’t promise a new customer an order in three weeks, when your supplier can’t get you an ingredient in fewer than four weeks.
  • Have a Local Alternative Supplier – You’ll be much better prepared if you have Think Local Fooda backup “B” supplier that is local.  Often there is a local supplier of an ingredient or packaging element that you’ve passed over because they charge more than the one you’ve chosen (your “A”) supplier.  Maybe this “B” supplier can’t deliver in the quantity you need or maybe they’re just too expensive.   But if they can deliver immediately when the “A” team can’t or won’t, make sure you have a relationship with them.  Buy from them from time to time just to build some loyalty.  That way, the day you call desperate for an overnight delivery, they’ll be there for you.
  • Fail to Plan Equals Plan to Fail – A forecast is just an educated guess of where sales are heading in the next two to three months.  But that educated guess gives you something to run your recipe against so that you can estimate how much of each material might be needed. Forecasting is most useful if done and updated regularly, say once a month for the next 3 months.  That way, you’ve gotten to review each forecast at least two or three times and gradually you will get better at doing it. From the forecast, you can work backward using the lead times to know when to place the orders for how much. That is key to reducing the stress of last minute purchasing is proper forecasting.
  • Manage Inventory “Perpetually”  – Traditional accounting practices called for taking a physical inventory periodically and then working back into what was consumed in the prior period. Although in some ways that sounds simple, it is also time consuming and error prone.  Instead, we suggest that you track your inventory constantly by accurately recording each change in inventory that you make.  Whether you are taking raw materials out of storage and creating new finished goods during a production run; or depleting your store of finished goods and packaging with each and every shipment, if you record inventory changes as they occur, you’ll find that in the end it is not only far less cumbersome, but it also delivers you much more accurate information for decisions.   If you follow this practice, then the time-consuming full physical inventory counts can be done monthly or quarterly to reconcile any discrepancies and true up in time for the creation of the next shopping list.

TKC’s Software Partnership –  Managing inventory at the level we’re describing is both vital yet challenging.   Large companies manage it by using expensive and complex software called MRP systems.  Last year, The Kitchen Coop teamed up with a software development team to create a much more affordable, and far easier to use system.   It’s called “Recipal” and it’s ready to go now, packed with the features all food manufacturers need.   It converts forecasts into shopping lists and then tracks perpetual inventory.   We think this is terrific tool and encourage you to look into it.  For more information, please check out www.recipal.com or email jeff@recipal.com.  Or just ask Jeff at The Kitchen Coop.

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