Last month I discussed a “revolutionary” method of inventory management that sounded great in theory. The author promised spectacular results from abandoning age-old concepts and adapting this simple idea. Unfortunately this “simple idea” wouldn’t work when applied to real-world conditions. I received quite a lot of response from this article. The most common question we received was: “How do you tell good advice from bad advice”?
The answer can be found in following a four step process:
- Test each interesting new concept that you think might apply to your situation.
- Evaluate the results.
- Modify the concept, if necessary, to compensate for your specific situation.
- Monitor the results to ensure that the concept remains valid to help you achieve the goal of effective inventory management.
Test
Talk and the written word are cheap. Many “spectacular” concepts fail miserably when put into practice. Reasons for failure include:
- Situations (e.g., unique patterns of usage) that are experienced by your company that are not adequately addressed by this new concept.
- The concept is too difficult or time consuming to implement in a real-world environment.
- Data necessary to implement the new idea is not readily available.
How do you avoid these problems? Test the new idea with a limited amount of products, branches (warehouses), or customers. Best practice is to have a “test” account in your computer system. This is an identical system to your actual “live” account in which you can test new ideas without risking harm or disruption to your day-to-day business. If it is not practical to have a test account, try to build models in a spreadsheet or database. Enter actual data for transactions into these models. Be sure to account for all aspects of your business environment.
Evaluate
Evaluate the results from the test. Are they similar to what you anticipated? Are they what the creator of the idea predicted they would be? Don’t hesitate to contact the person who created the concept to discuss your results. Was there an aspect of the idea you didn’t understand? Do you need to repeat the test once you have a better understanding of the idea?
Modify
No two organizations are exactly alike. It may be necessary to modify the original idea to meet your specific company’s unique situation. Keep an open mind. I have worked with many buyers and inventory managers who made a half-hearted attempt to implement a great new concept or system only to abandon the idea when the results first received weren’t perfect. But the new system could have delivered the desired results with just a few changes to parameter settings.
Monitor
Even if a new idea produces great results you must continually monitor its performance over time. Your business environment continually changes. For example, new products are introduced, you gain and lose customers, or you enter a new market. Make sure there are “exception” reports or inquiries in your computer system to monitor significant differences between forecasts produced by the implementation of any new idea and actual results. No system works forever without some “tweaking.” And eventually every system needs to be updated or replaced.
In today’s business environment changes occur at a faster pace than ever before. New technology is introduced, new customers are acquired, and new products are added to inventory. It is imperative that you review industry periodicals and Internet postings to keep abreast of new concepts and tools. But be careful. All that “glitters” is not gold. Don’t implement any new concept without proper testing, evaluation, possible revision, and monitoring.