In the automotive manufacturing industry, managing inventory effectively is crucial for ensuring smooth production and acceptable costs. There are several best practices that companies follow to manage their inventory more effectively, including maintaining accurate inventory records, implementing Just-In-Time (JIT) inventory management, establishing safety stock levels, managing supplier relationships, and utilizing inventory management software. Companies that optimize their inventory management, especially given the likelihood of supply chain disruptions, place themselves at the forefront of automotive manufacturers.
Maintain Accurate Records and Current Data
Maintaining accurate inventory records is crucial for effective inventory management. This includes keeping track of all inventory levels, including how much stock is on hand, what is on order, and what has been sold. Keeping accurate records allows you to identify patterns in inventory usage, such as seasonal fluctuations in demand, and adjust your inventory levels accordingly. This can help you avoid overstocking, which can tie up valuable resources and increase storage costs or cause production delays and lost revenue.
Having accurate inventory records also allows manufacturers to identify slow-moving or obsolete items, which can then be phased out or sold off to make room for more profitable products. When signs emerge that inventory data can’t be trusted, it’s best to do a physical inventory to correct the record. After this inventory, periodically doing cycle counts ensures that the records don’t deviate from the warehouse stock and stock on the shop floor.
Implement JIT Inventory Management
Just-In-Time (JIT) inventory management is a methodology that is based on the principle of ordering parts as they are needed, rather than maintaining large inventory levels. The goal of JIT inventory management is to minimize inventory costs by reducing the amount of stock that needs to be stored and managed. This is achieved by closely coordinating production schedules with supplier delivery schedules so that parts are delivered to the production line just in time to be used. While most suppliers practice JIT, it typically decays at some level of the organization. Practices deployed for a short-term fix become entrenched and pretty soon, the deviation becomes the standard. Once a crisis is mitigated, the team’s focus should be on returning to the standard, not rewriting standards to accommodating abnormal conditions.
One of the key benefits of JIT inventory management is that it helps to prevent stock from becoming obsolete. With traditional inventory management methods, companies may order large quantities of products in advance, and then hold onto that stock for an extended period of time. However, with JIT inventory management, products are only ordered when they are needed, which means that there is less likelihood of stock becoming obsolete or redundant. JIT inventory management also allows for a better inventory turnover and improved visual management. It helps to keep your team focused since it requires close coordination between the supplier and the company.
Establish Safety Stock Levels
The purpose of safety stock is to provide a cushion of inventory that can be used to meet unexpected spikes in demand or to cover short-term supply chain disruptions. Safety stock is typically established by determining the average demand for a product and the lead time required to replenish that product, and then adding a safety stock buffer to ensure that there is always enough inventory on hand to meet demand.
Establishing safety stock levels is an important part of effective inventory management, and is particularly important for companies that operate in highly dynamic markets. These manufacturers often rely on just-in-time inventory management methods, and may be more vulnerable to disruptions in the supply chain.
When establishing safety stock levels, it is important to consider the costs and benefits of holding safety stock. While safety stock can help to ensure that production does not come to a halt, it also ties up valuable resources and increases storage costs. Therefore, it is important to find the right balance between the cost of holding safety stock and the potential cost of production downtime. Additionally, advanced inventory management systems can help in forecasting demand and setting appropriate safety stock levels.
Managing Supplier Relationships
Developing close relationships with suppliers allows you to work together to optimize inventory levels and delivery schedules, which can help to minimize costs and improve efficiency. This can be achieved through regular communication and collaboration with suppliers, such as by sharing information about inventory levels, production schedules, and demand forecasts. As is often the case, communication is the primary currency when managing supplier relationships. Without effective communication up front, overcommunication becomes necessary. The pain of a poor supplier close to a launch date is extreme. Although your team might not mind occasional travel, weekly trips to deal with a supplier in crisis or “babysit” are a drain on morale and resources.
One of the key benefits of developing close relationships with suppliers is that it allows you to negotiate better terms and prices. By working closely with suppliers, companies can gain a better understanding of their needs and capabilities, which can then be used to negotiate better deals. Additionally, close supplier relationships can lead to more reliable delivery schedules, which can help to reduce the risk of stockouts and production delays. Suppliers can also provide valuable information about industry trends, technology advancements and regulations that can help the company to stay ahead of the competition. Furthermore, having multiple reliable suppliers can help to reduce the risk of supply chain disruptions and increase the overall resilience of the company.
Use Inventory Management Software
Many executives already have inventory management software deployed, but the reality under the surface is disappointing. Companies frequently use a patchwork system of spreadsheets to compensate for half-finished implementations. When the inventory management software isn’t properly rolled out to support the business processes, the workarounds create an unnecessarily fragile system. When the factory is placed under the stress of large or unexpected orders, these weak links begin to break, one by one. Consequently, utilizing inventory management software is an important aspect of effective inventory management. There are various software tools available that can help you manage your inventory more effectively, including tools for tracking stock levels, forecasting demand, and optimizing production schedules.
Inventory management software can help you track your inventory levels in real-time, allowing you to quickly and easily identify which products are in stock, which products are on order, and which products are running low. This information can then be used to determine when to reorder products, and in what quantities. Many inventory management software applications also include forecasting features that allow manufacturers to predict future demand for products, which can help you to optimize your inventory levels. This can’t be done unless the systems has accurate data that precisely reflects the reality in your plant.
Conclusion
Managing inventory effectively is crucial for the success of any automotive manufacturer. By following best practices companies can optimize their inventory management and improve their bottom line. However, even with the best practices, companies may still encounter inventory management problems. In these situations, hiring a specialized consultant can be a valuable solution. A consulting agency can provide expert analysis and advice on specific inventory management issues, as well as help implement and monitor new inventory management strategies.
Thanks to our team of specialized operational consultants, Seraph can come alongside a new company and act as a support structure and begin adding value from day one. Our advisors are former management at many suppliers and OEMs and are experts in production and operational efficiency. Contact us today to schedule a discovery call, or see our case studies for more information.
