Inventory Analysis: 5 Quick Ways to Unlock Your Hidden Cash Pile
While it’s fashionable to point to sales analysis as an example of how Business Intelligence adds value and delivers ROI, at Matillion we think that inventory analysis is just as useful — and maybe more so.
Because while the impact of sales analysis takes time to work its way through to the bottom line, inventory analysis has more immediate benefits. For cash-constrained businesses, in short, inventory analysis delivers one of the fastest time-to-benefits possible.
It’s not without a certain irony. Ask anyone who’s managed a warehouse, and you’ll hear the same sorry tale.
The parts, materials, and products that customers are demanding are precisely those that it’s difficult to keep in stock. Meanwhile, the shelves are groaning with the parts, materials, and products that customers aren’t demanding.
And ask anyone who’s managed a warehouse in a business that is cash-constrained, and you’ll hear an even sorrier tale. Because where cash is tight, the supplies of incoming inventory to replenish those items that are selling can become erratic, or dry up completely as borrowing limits are reached.
Meanwhile — you guessed it — the shelves are groaning with parts, materials, and products that customers aren’t demanding, and which aren’t selling.
1) Use inventory analysis to cut down reorder quantities
Once you start using inventory analysis to express individual stockholdings in terms of days of sales, it’s easy to get a nasty shock. Why on earth do we have ten months’ worth of sales of this item sitting on the shelves? And why did we buy so much of it just last week?
The answer is likely to lie in reorder quantities that are too large — either due to a setting in an inventory control or MRP system, or the purchasing department taking ‘advantage’ of discounted rates for bulk purchase. But in such situations, buying fewer items, albeit at a slightly higher price, is likely to be a more profitable strategy.
2) Use inventory analysis to re-set safety stock levels
Consult an inventory management textbook, and you’ll discover that fast-selling items have a much lower demand variability than slow-moving items. But often, safety stock levels fail to reflect this, holding just as much safety stock for fast-moving items as for more erratic, slow-moving items.
With inventory analysis, safety-stock levels can be better aligned with demand variability, freeing up surplus stock without impacting customer service levels. The result: lower inventories — and happy customers.
3) Use inventory analysis to generate cash from surplus stock
Without inventory analysis, it can be difficult to identify surplus stock. But with inventory analysis, it’s all too easy to see that the stock levels of some items are way out of kilter with requirements. You could wait for the situation to resolve itself naturally, of course — but that might take several years.
It’s often better to explore ways of selling off surplus stock, once identified. Offering discounted prices is one stratagem. Selling to a specialist broker is another. Selling back to the original supplier is yet another. Either way, it’s cash in the bank — and not sitting on the shelves.
4) Use inventory analysis to raise service levels, and boost sales
Sometimes, safety stock levels are too low, especially on fast-moving items. Customers want to buy a part, product, or material, and they can’t — because it’s out of stock. Now, in some businesses, customers will wait until what they want is back in stock. But often, that moment of being out of stock turns out to be a lost sale.
Raising service levels by re-setting safety stock levels in this way has a negligible impact on inventory holdings, because the items involved typically turn over very quickly — which is why you’re out of stock in the first place. But the impact on reputation, customer satisfaction levels, and revenues, can be significant.
5) Use inventory analysis to capture trends
Are the sales of an item rising rapidly? Are the sales of an item falling rapidly? Is demand predictably higher at some times of the year than others? Are certain items routinely bought together?
In each case, this is vitally useful information, allowing businesses to better manage their inventories, boost sales, and increase customer satisfaction.
But without inventory analysis, such things can be difficult to spot. And an opportunity not spotted is an opportunity from which a business can’t profit.
Inventory analysis: the bottom line
For businesses with inventory to manage, a Business Intelligence-based inventory analysis toolkit can be a valuable way of not just generating operational insights and improvements, but actually freeing up cash and boosting sales and profits.
And with today’s cloud-based Business Intelligence, the power and ease of use of inventory analysis tools has never been greater.