Today, we are witnessing a shift in how businesses manage inventory. While departments used to focus solely on their own responsibilities, now it takes a cross-functional team effort to coordinate the movement of goods. Previously, only the purchasing agent spoke with suppliers about product requirements and specifications. Now, engineers reach out directly. The accounting departments were only concerned about the financials of the company, but are now involved in the purchasing and operational decisions. The shipping and receiving function now needs to work with the rest of the warehouse crew and production to get raw materials in quickly to the right location — and products out to customers — with the coordination of shippers.

These changes are a product of the larger transformation in business environments, or the way in which companies manage their resources. This has changed profoundly over the last 30 years. What used to be a centralized, hierarchical structure has evolved (some would say, “devolved”) into teams with shared responsibilities and collective accomplishments. Businesses worldwide stress the needs and benefits of collaboration and “team-building.” The results can lead to better outcomes for both the companies and the individuals involved.

Changing Roles in Inventory

Here are some examples of how roles have changed in regard to inventory in distribution and manufacturing processes:

Shipping/Receiving

The lowly receiving clerk function of many years ago has turned into a scanner-packing data ninja impacting the supply chain for production and the customer service area of sales. Shippers’ trucks now run on tight schedules, so receivers need to unload, scan, quality-control and “put away” to designated locations quickly to meet production and customer demands. Accuracy is important because an error can mean the holdup of a production line, or a delivery to a customer.

Impacts:

Procurement/Purchasing

These functions are sometimes separate, sometimes performed by the same person, but the collective role cannot be underestimated for the outcome of the business. Procurement is about finding the right suppliers and sources of product or raw material. Purchasing is setting in motion the delivery of those raw materials (in manufacturing) or complete goods to the right distribution center at the right time. This involves timing of deliveries, effective communication, and the financial resources to make it all happen.

Impacts:

Operations/Warehouse Management

metamorphosis in the sector of businesses managing inventory

Managing a warehouse is like being the host at a party.  You need to make sure you have everything on hand to satisfy everyone, while people come and go constantly. The person who does the “put away” of the goods received will probably not be the person who does the “picking” for the customer orders, so a well-organized warehouse is a must. Operations will be concerned about rotating stock in cases of lot and serial number control, managing access to shelves and bins, responding to production or shipping staging area requests, and the safety of workers.

Impacts:

Production

At the heart of a manufacturing company is where the finished goods are produced. This may involve a job shop, batch, assembly, or continuous flow processes. People here rely heavily on the procurement and purchasing agents to have the raw materials in stock, and the operations crew to stage the materials for the production line. Plant managers are under the gun to coordinate materials and available labor to manufacture the consumer or business-to-business (B2B) goods necessary.

Impacts:

Sales

At the forefront of every business owner’s mind floats the constant obsession to meet or expand sales to customers. And while the sales function does drive the business, it takes methodical and honest planning to achieve sales goals. This involves looking at current demand and anticipating future orders based on expected demand. Sales people must then translate expectations into specified product requirements in the future. If the budget is set too low, customers are left without products. Plan too high and the warehouse bulges with too much stock — and laborers mill around waiting for work.

Impacts:

Accounting

Authorizing funds for inventory purchases is this department’s primary role regarding inventory. Inventory is usually the largest asset class on a distribution company’s Balance Sheet. Purchasing determines the needs through forecasting and requisitions, but accounting must pay the bills when they come due. Being a part of the financial planning for this aspect of the material management allows finance to balance the needs of production with what is possible for the company. Unrestrained purchases can put a financial bind on the company’s ability to get funding. Two functions the accounting department serves are:

  1. Comparing shipping documents for items received against purchase orders and supplier invoices; and
  2. Overseeing successful completion of the (usually) end-of-year physical inventory count. Accounting is also responsible for tracking the outstanding accounts payables and receivables around inventory.

Impacts:

Management — Sales & Operations Planning

Cross-Functional Inventory Environment

All members of leadership need to be aware of the operational and financial impacts of inventory control. This usually takes the form of reports, including Sales by Item, Inventory Turns, and Margin reports. It also involves reviewing the overall layout of the warehouse and how the different functional areas are working together as a team.

How do you get the different areas to work together? A long utilized tool in management for controlling the inventory levels is the “Sales & Operations Planning” meeting, or S&OP. The primary members of the meeting are:

Staff from these departments start compiling data for their area weeks in advance. Sales determines the projected sales volume, production analyses their current capabilities in terms of manpower and equipment, and finance determines funds availability.

At the S&OP meeting, the sales manager usually leads with the expected or projected sales for the qualifying period, usually the next month or quarter. Production will attempt to match capabilities with the sales projection, and accounting will advise if funds are available to support the operation for that period.

Once the goals have been agreed upon, the company executives sign off on the plan, and actions are put in place in each department to meet the stated goals. The result of this collaboration is that each department knows what to expect for the short-term future, and can plan for the materials and people needed to accomplish it. It also holds everyone accountable to meet their stated goals, and not waffle on unspecific promises.

Inventory management is a process, not a task. While many people have a role in the supply chain, they must all work in unison for the successful completion of the process.  Management needs to understand this in order to get total control of the inventory/supply chain process and to make it work within their company.

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