Inventory Exposure & Root Cause Analysis of Stock-Out
Every business has inventory issues, whether they are acknowledged or not. Surplus, outdated materials, safety stocks, stuff kept in the incorrect warehouse, material that isn’t quite good enough to use but isn’t good enough to throw away, and goods nearing their shelf-life limits all contribute to the issue. These inventory issues are a waste. They cost the business money, need material handling, and take up precious space. Most significantly, inventory issues make warehousing operations more extensive and more complicated, and therefore more expensive than they need to be. The method outlined below, Microsoft Dynamics 365, makes inventory management more straightforward than ever before. However, like with any new software-related job, figuring out where to begin may be difficult. Moreover, it also helps in getting to know the root cause analysis of stock-out. Nevertheless, it assists businesses in determining the scope of their inventory issues and how to mitigate their effect.
What Causes Inventory Issues in the First Place?
Short-Term Recovery Establishment
Most North American companies are notorious for their lack of tolerance throughout the globe. Because of their emphasis on short-term outcomes, it tends to create short-term solutions and abandon projects if these solutions fail to achieve the required results fast. This scenario may attain disaster recovery by emphasizing the importance of inventory control problem levels alongside productivity and short-term sales. As a consequence, they should be a formal component of the company operation’s measurement.
The short-term solution is typically straightforward to identify but difficult to implement: get rid of the problematic stock. The company will have to bear the one-time, short-term expense of dealing with the issues. But it must be done, regardless of how tough it may be. If the company currently has a reverse supply chain in place, this job will be much simpler.
No Use to Automation
Several companies are still using excel-based inventory management and are trapped in the Stone Age. They will perish if they do not scale up or automate quickly enough while becoming online or Omni-channel. Not only is it outdated, time-consuming, and inefficient, but the potential for human mistakes is enormous.
It’s critical to automate your processes in situations like these:
- You have several shops or warehouses.
- Your brick-and-mortar business branches out into internet platforms.
- You’re working with a restricted budget and a hiring cap.
Lack of Assessment and Evaluation Process
Identify circumstances that may lead to an inventory count issue. Keep an eye out for:
- Sales projections that are too optimistic and unanticipated, i.e., the last-minute engineering adjustments.
- Poor communication between the departments of warehousing, buying, scheduling, and manufacturing.
- Changes in the market and technology.
- Failures by vendors and manufacturers to fulfill deadlines, a lot of the size and order policies that are incorrect.
- Safety stocks in excess and incorrect inventory record, as well as poor production planning and/or unrealistic schedule.
Counting Inventory Less Frequently
Even the most automated inventory report may contain mistakes, which often occur when un-traceable inventory, such as pilferage, or swaps, are not recorded. As a result, you should plan stock audits regularly.
If different stock parts are verified frequently, you may be sure that your system figures are relatively close to actual numbers. Scheduled inspection cycles using barcode scans are required, say once a day for one area. Choose days when you’ll have enough people accessible to count.
When it comes to getting rid of defective inventory, businesses must think outside the box. Customers, brokers, or inventory clearing firms may buy the faulty products at a discounted price. When there are inventory problems, the impact is usually mitigated so that costs may be absorbed when they’re needed. Watch for forecasts that are too optimistic and last-minute engineering changes.
How to Avoid Inventory Issues?
Access and organize for the disposal of problematic inventory
Arrange for the removal of complex stock. To develop new methods to get rid of issue stock, you’ll need to be creative. Depending on the product, disposal options include:
- Customers, brokers, or inventory clearing companies may purchase the defective goods at a reduced price.
- Stock reorganization.
- If they use it as a substitute, components are disassembled and reused.
- Intra-company transfers.
- Using for research and development, i.e., new product designs.
- Using for training purposes sending to the scrap yard.
It’s common to need to mitigate the effect of inventory issues on the company and enable expenses to be absorbed at the right moment. As more companies develop circular supply chains in response to decreasing resources, this approach may alter.
Measurement Criteria for Performance in Place
To avoid inventory issues, measure both tangibles and intangibles. Customer satisfaction, inventory turnover, and even working capital are all essential factors. Depending on your sales cycles, product managers must keep track of regular fill rates and inventory turnover.
Robust reporting may be very beneficial in this situation. Inventory reports provide a fast snapshot of how you’re doing, allowing you to address issues before they become significant difficulties.
- By investing in automated inventory management systems and utilizing automatic updates in real-time, you can prevent human mistakes and maintain appropriate stock levels. To keep track of SKUs, use bar-coding technology.
- By utilizing software that allows the distribution of products depending on demand for multi-location inventory management. You may thus make use of the inventory currently available, save money on needless POs and increase storage space.
Employees With Weak and Inadequate Training
There is a vital human element to inventory management regardless of how effective your software is or how well-automated your system is. Inadequately trained employees who do not understand or know how to cycle stocks may be an issue. Likewise, you cannot understand your inventory system. We recommend you have at least one individual with knowledge of your inventory system and the ability to train new employees and monitor warehouse management and shipping operations. In addition, this person should possess previous experience concerning stock problems. The tasks of an inventory manager are as follows:
- Detecting shortages or the likelihood of supply outages before they occur.
- Auditing stock regularly.
- Reporting inventory levels.
- Determining the number of goods to buy and placing purchase orders
- Utilizing inventory management techniques.
- Educating warehouse employees on proper inventory management.
- Estimating how much inventory you’ll need at that location in the following order cycle.
Your lead time will be cut in half if your workers are appropriately trained on your company’s processes. This will save you much money in the long run and help you establish a reputation for efficiency.
Create A Long-Term Solution
Inventory issues will continue, and it will not reduce their extent until long-term remedies are established. These therapies will very certainly emerge when the causes are discovered. In some instances, executing the solutions may require substantial modifications to existing business processes, while in others, the cures may be straightforward to implement. Lastly, warehouse inventory management is built on the principle of economic efficiency.
Regardless of how successful your software is or how well-automated your system is, inventory management remains a critical human aspect. Product managers must maintain track of fill rates and inventory journals regularly. If your employees are adequately educated on your company’s procedures, trained employees will reduce your lead time in half. In the long term, this will save you money and help you build a reputation for efficiency.
KPI Records for Inventory Control
|This Month||Last Month||Target|
|Inventory Value||Slow Movers Value||Inventory value||Slow Movers Value||Inventory Value||Weeks on Hand|
How can Root Cause Analysis of a Stock Out and Minimized Inventory Exposure in Dynamics 365 can Benefit your Business?
Establishing Dynamic Stocks for Security
Safety stocks are a significant concern in many companies since they safeguard the supply chain against irregular and unexpected demand. Setting proper safety stock levels for goods is always a difficult job, and many companies take a broad, straightforward approach that inevitably results in shortages of certain products on the shelf, as well as severe overstocking of others. Customers usually struggle to appreciate the typical “feast and famine” scenario when their order isn’t fulfilled. Microsoft Dynamics 365 Finance & Operations offers automated techniques for dynamically determining suitable statistical safety stock control for individual goods and categories of products based on the fluctuation in demand and intended percent levels of service. Moreover, it also provides you with root cause analysis of stock-out allowing your company to fine-tune its inventory profiles over time to achieve the optimum balance of customer service and inventory holding expenses.
Using Standardized SKUs
Employees can manage SKUs across all of your retail and warehouse locations while also keeping track of orders, returns, swaps, and shipments for all of your products by automating. That, too, is done in real-time. Routine activities such as creating barcodes, invoices, and purchase orders may also be automated. You can standardize inventory management to a large degree if you identify your items and SKUs correctly. There will be no misunderstanding among team members. There is a distinction to be made between SKU numbers and barcodes, which is crucial to understand.
Root Cause Analysis Steps of a Stock in Dynamics 365
Below are some advantages listed in performing root cause analysis steps of a stock out and minimize exposure of inventory adjustment in Dynamics 365:
Begin by assuming that all inventories are a problem until it is justified financially. Then make a list of the inventory issues that may cause the most losses, such as:
- Material that has been placed incorrectly.
- Material that is no longer in use overstocks.
- Material with faults.
Individual Category worth Analysis
It helps to decide how much each group is worth. Then, calculate the worth of these categories by multiplying the overstock by the number of weeks or months of supplies on hand. Each measurement has the potential to establish a fine boundary between justified financial worth and the underlying inventory issues through a Customized Analysis Report.
Establish Audits and Reporting Processes to Keep Track of the Issue
It helps setting up a technique or system to automatically and regularly measure the number of inventory problems on hand. First, make careful break down of the data by geography, product line, stock age, or problem reason. Then, provide an evaluation tool that can also determine the details of the evaluation.
D365F&O provides automated methods for establishing appropriate statistical safety stock levels for specific items and product categories dynamically. It enables businesses to fine-tune their inventory profiles over time to achieve the best combination of customer service and improved inventory holding costs. The company also offers a tool for determining the value of each item and an assessment tool.
How to Adjust Inventory in Case of Surplus Stock?
Step 1: Inventory Management
Go to Inventory Management > Journal entries > Inventory adjustment
Step 2: Open Inventory Adjustment Dialogue Box
Click on “+ New” to open the inventory adjustment dialogue box. Make sure that under the field name “Adj” is selected. Click on “OK”
Step 3: Write the details of all the Inventory you found
After Clicking “OK,” the following inventory adjustment form will open. Click on “+ New” and write the details of all the inventory you found in your warehouse in the line. The details will include the Item number, Product name, site, warehouse, along with the quantity and other required information. The amount will be posted with a negative sign if the adjustment is meant to record decrement in quantities and positive otherwise. Then click on “Post” in the action pane.
Step 4: Dialogue Box Appears
A dialogue box will appear. Click on “Ok”.
If one of your warehouses comes up with fewer recorded inventory adjustment compared to the actual one. In this case, you can follow the above steps to adjust your inventory in your warehouse using Dynamics 365.
The Complexity of the Supply Chain
The unstable international trade environment and intense rivalry amongst e-tailors’ are forcing medium and small enterprises to adapt.
- Networks of supply become more complex, i.e., the longer you have partners, the longer it takes to create a product and the more problems you have with tracking.
- Increased product range to offer consumers more options strains storage space and stock management systems.
- Increased stock levels, even if this implies more working capital than is required to guarantee available resources.
Fortunately, specific proven methods are available for maintaining a reliable supply chain. These issue inventories may be dealt with in many different ways:
- Time to lead or how long it takes to execute an instruction is essential. Considering the lead times of your providers helps a great deal. It is also a good idea to keep track of vacation, weather, and other potential delays.
- Maintain a reserve for the security of supply. In case of shortages or resupply delays, this is a good backup plan.
In the current global trading climate, small and medium-sized businesses must evolve. It takes longer to develop a product as the number of partners you have increased. Keeping a reserve for the security of supply is a smart backup strategy. Keep note of other delays as well, including whether or vacation time.
Businesses must think creatively when it comes to removing faulty goods. Customers, brokers, and inventory clearing companies may negotiate a lower price for defective products. D365F&O is a software program that analyses inventory issues and determines the value of each item. The business should conduct an inventory assessment and make preparations for the elimination of problematic stocks. Your lead time will be cut in half if your workers are adequately trained on your company’s processes.
How to add Stock keeping Units in Dynamics 365?
Stock keeping units allow you to differentiate information about an item for a specific location, such as a warehouse or distribution center, or a specific variant, such as different shelf numbers and different replenishment information, for the same item. To set up a stock keeping unit, choose the Lightbulb that opens the Tell Me feature. icon, enter Stock keeping Units, and then choose the related link. Afterwards, Choose the New action. Fill in the fields on the card. The following fields are required: Item No., Location Code, and/or Variant Code. Hover over a field to read a short description. When you have set up the first stock keeping unit for an item, the Stock keeping Unit Exists check box on the Item card is selected. To create several stock keeping units for an item, use the Create Stock keeping Unit batch job.
What happens when you reduce inventory?
Reduced inventory allows you to respond quickly to changes in the market and industry, such as short product lifecycles. Carrying expenses, storage costs, and transportation costs between warehouse locations are all reduced when inventory is reduced.
How do you calculate inventory reduction?
Divide the total value of products sold over the period by the average inventory value and you get value of reduced inventory or turnover ratio. For example, If your company sold $10,000 worth of goods during the year and had an average inventory value of $1000, your inventory turnover ratio is ten.