Storing inventory comes with costs that are felt by many departments of a business, not just the operations department. Having a large amount of inventory may seem like a good thing; increased availability, purchasing discounts and not having to wait for supplier deliveries…
However, having too much inventory can result in disruption to workflow, increased inventory costs and slow customer lead times. For more information about the consequences of too much inventory, watch this video. In addition, Rowtons Training offers operations management training courses for those who want to learn more about managing inventory.
Inventory Costs
Storing inventory comes with costs. The two main costs felt by the operations department of a business, when it comes to inventory management, are holding costs and operational costs.
What are Holding Costs?
‘Holding costs’ refers to the costs that the business has to pay just to possess the inventory. This may include paying for storage, heating or cooling, electricity, insurance, and transporting the inventory.
What are Operational Costs of Inventory?
‘Operational costs’ refers to the internal costs and work incurred by the business for the administration, scheduling and hassle that goes into managing the inventory.
From the perspective of other departments in the business, there are also financing costs, opportunity costs and cashflow consequences that are incurred by possessing inventory.
What are the Consequences of Too Much Inventory?
For the people working in the operations of the business, too much inventory can result in a cluttered space, a disruption to the flow of work, and complexity when it comes to scheduling and managing tasks.
A woodworker with too much inventory may find themselves constantly moving raw materials around their workshop, juggling too many jobs at once, and taking more time to find everything they need to get started on a job. Ultimately, this leads to lower productivity, longer lead times for customers and decreased customer satisfaction.
The same problems can be applied to many industries, for example software development and hospitality, where ultimately the customer experience suffers as a result of distracted employees and slow customer lead times.
Operations Management Training
Rowtons Training has a number of training courses dedicated to inventory management: Inventory Management A-Z and Safety Stock Calculation and Control are just a couple of operations management training courses designed to increase your knowledge.
Can a Business Have Too Much Inventory?
Yes. Having too much inventory ultimately leads to increased inventory costs and longer lead times for customers on products or services.
Different departments in the business will experience the costs of having too much inventory in different ways.
For example, the purchasing department of the business might want to take advantage of lower ordering costs by bulk-buying inventory, while the operations department struggles to manage the space and scheduling complexity that comes with holding and working with so much inventory.
The financing department of the business may want to invest money elsewhere, rather than see it sitting in the warehouse in the form of inventory, and the sales department may want to maximise the amount of completed products that they have available to sell.
The upshot is that departments will need to work together to come up with an inventory management solution that suits the competitive priorities of the business at that time.
Summary
Too much inventory can disrupt the workflow of a business, cause longer lead times for customers and ultimately lead to decreased customer satisfaction. Operations is not the only department that needs to be considered when making decisions about inventory management.
However, the operations department can improve the capabilities of other departments to work effectively with less inventory. As a business improves its capabilities; reducing rejects, working with smaller batch sizes, better process control and more – the amount of inventory can be lowered over time to reduce inventory costs and improve customer lead times.Click here to watch the video for more information about how too-much-inventory can be the enemy of business operations, or browse Rowtons Training’s video courses for more operations management training.
