Improving your inventory balance gives your company a competitive edge: lower costs and higher customer fill rates lead to more success.
Conversely, neglecting your inventory means dramatically reduced profits, which could even result in company failure.
Over the years, our team has noticed that far too many businesses who have tried some form of Inventory Management Software (also known as IMS) continue to struggle with numerous issues the IMS was supposed to resolve.
That’s why we want to take a deep dive here to explore what is required for a successful implementation of a solution that fixes your inventory weaknesses. Let’s get into it.
Three causes of failure
Assuming that the selected IMS has the functionality to satisfy the particular requirements of your business, research suggests the following are three major causes of sub-standard results:
- Inadequate involvement and commitment from the key employees and leaders
- Poor project management
- Lack of or inadequately defined objectives
An IMS is essentially a simulation of your supply chain; therefore, if the project manager does not have the necessary understanding of inventory management or your supply chain, then a specialist with these skills on the team is essential.
Who should be on your team?
First off, more involvement and support from management greatly increases the likelihood that implementation will yield positive results.
Depending on your company, the following persons/departments will typically be required:
- Project manager
- IT who understand the table structure of your ERP
- Planners/Buyers
- Production planning and Branch Managers (if you have a distribution center)
- An essential member of the team is the person who will be responsible for the ongoing operational management of the IMS – (Superuser)
For the correct configuration of the IMS, the following questions are highly relevant:
- What does the supply chain structure (including locations) look like?
- If there are central warehouses (distribution centers), how is the linking to the products and branches supplied by the central warehouse determined?
- How are inter-branch orders placed?
- How many periods of sales history is available or relevant?
- Is there a requirement to manage Supersessions? How is this data maintained and do these links exist in the ERP?
- Are Bills Of Material used and are they up to date?
- Do bills differ from location to location?
- How are Supersessions in the Bill of Material managed? Are Supersessions time dependant?
- In a manufacturing environment, are components issued upon the raising of the works order or are they backflushed at the end of the manufacturing process?
Data validation
When the data is available in the IMS, the first step is to verify that for a snapshot in time, the data in the IMS is identical to the data in the ERP.
Data quality
Implementing an IMS is an opportunity to clean up the data. In some cases, the IMS itself will have data purity management tools to facilitate this.
The data purity measures typically include:
- Items with zero cost
- Items with negative cost
- Items with no supplier
- Items with zero lead times
- Invalid Bill Of Material links
- Invalid Supersession links
- Overdue purchase/works orders by days overdue
- Overdue sales orders by days overdue
It’s also important to monitor the often-overlooked stock accuracy.
TIP: The causes of the variances must be established so that corrective action can be taken to resolve any business process flaws that are uncovered during this process.
Adding the users
Our experience shows it is best not to add users to the IMS until the data has been well scrubbed and is usable. Introducing users to a new application where the data is invalid would frustrate them and leave them feeling a lack of confidence in the new application.
Further, users should only be added when the super user agrees that the IMS passes a basic sanity test and now reflects reasonable order recommendations. The hurdle to getting started for a user is massive if a user logs in for the first time and cannot understand how this system is working.
User training
Add the users and commence the training process. Ensure users know how to access online help and training tools.
Set up a user discussion group for both training and to explore and resolve problems users may be experiencing. Group training is an excellent way to ensure that users complete the training and are on the same page.
Change management
Change management is often totally neglected. The need for change management at the user level must not be underestimated. Users are a lot more comfortable with their old ways, and a few may be stubborn and reluctant to stop using their old tools. This is completely understandable, and these users simply need guidance to go through the learning curve.
For example, users are very comfortable with the spreadsheet they probably set up themselves a long time ago and it is naturally not easy to give that up. In this previous blog post, we point out that while a spreadsheet may have been appropriate in the past — but in today’s world where Inventory Management Systems have made great strides, they are no longer appropriate. (The other big risk in using spreadsheets is the data.)
The breakthrough is often achieved once users understand how the IMS makes their job easier and saves them time. When users see the benefits, they almost always buy in to the new process, which further increases the value of the IMS to the business.
Re-training and training of new users
Most users will, over time, forget some of the finer points of what they were taught. Periodic refresher courses will be valuable. Furthermore, staff turnover is a reality. Ensure an induction and training program is in place for new users.
An IMS provider who runs regular webinars, offers chat help, and delivers other training content will make for a an added advantage. Be sure to check in the vetting and buying process that these training methods are utilized by the IMS provider.
Process management
Assign a team member to define and manage the ongoing monthly, weekly, and daily processes.
The benefit of giving each user a simple written procedure for each task they perform is that they know what to do and know that you are aware of what is expected of them.
Support channel
It’s important each user knows who to turn to for first level of support in your company. Encourage them to use this support channel. Communication within your team is crucial for continued success.
Summary – people manage inventory
A successful IMS implementation isn’t just about selecting the best IMS or running a flawless technical implementation.
Ultimately, people manage inventory using the available tools. A deliberate, focused change management process is required to help users to stop using old tools like spreadsheets and begin using your new IMS.
Well-trained users who are following simple written procedures will achieve extraordinary results.
Summary of the typical data requirements from the ERP
You should know which fields in your ERP system contain the following data:
- Stock on hand (is this the physical stock on hand, or the net available stock after subtracting back orders, manufacturing kit shortages, pick notes for items in the invoicing process, etc?)
- Does the receipt of a customer order allocate or reserve stock for the order?
- Cost price and whether it is the latest or average cost
- The default supplier code
- Open purchase orders
- Completed purchase order records may be useful to monitor supplier lead time and delivery performance
- Open customer (sales) orders
- Information on minimum order quantities and order multiples imposed by suppliers
- How lead-times are set or calculated and whether or not they are at the supplier level or at a location product level
- Is a Bill Of Materials used? Are the links up to date?
There’s a lot to consider here, but spending some time ahead of your IMS implementation is really the only way to ensure that the process will go as well as you want it to. Refer to these guidelines as you start the implementation and be willing to revisit these ideas as your go along.
The better you manage this process, the sooner you’ll see major results from your new IMS.
At Netstock we charge according to your inventory value, making our solution affordable for any size company.
