Don’t Let Inventory Control Your Bottom Line

It's a rare business owner who doesn't want to lift profits, reduce the cost of holding inventory and boost cash on hand. Two of the smartest, cutting edge inventory control methods can help you do that - the just in time (JIT) and accurate response systems.

JIT management involves planning shipments of material to arrive only when they are required. This saves money in inventory costs and increases production responsiveness and flexibility. In order for this concept to work, though, you've got to have effective lead-time management.

The accurate response approach focuses on forecasting, planning and production. The underlying premise of accurate response focuses on flexible manufacturing and shorter cycle times to better match supply with demand. This speeds up the supply chain process, allowing managers to delay decisions regarding raw materials, obtain more market information, and better determine production requirements.

Some of the elements of JIT management include:

The accurate response method of inventory management incorporates two key elements:

  1. Overall performance. Accurate response measures the cost per unit of stock-outs and markdowns. It then factors this information into the overall evaluation of the firm's performance. Let's say your company can't meet demand. The lost sales would be factored into the overall costs, which would then justify increasing production to obtain and maintain customers.
  2. Predictable and unpredictable products. By differentiating between the two, you can change your approach to manufacturing both items. Predictable products can be made further in advance to "reserve" capacity during the selling season for unpredictable products. Then, your company wouldn't have to accumulate and pay for large inventories.

Incorporating JIT and accurate response techniques can drastically raise your company's efficiency. Lowering inventory levels cuts operating capital needs and gives you a competitive edge. Reducing the expenditures for warehouses, employees, and equipment produces a stronger balance sheet, income statement, and improved cash flow.


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