How well can you manage inventory?

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Inventory means goods and services available in a company’s stock that can comprise raw materials, components and finished goods. The stock keeps varying as per the demand and supply dynamics of the market. Thus, companies tend to hold certain amount of inventory in order to meet up the escalating demand or the expected level of sales. However, during the recessionary period between last quarter of 2008 and last quarter of 2009, inventory maintained by many companies piled up due to lack of demand in the market. So, cutting down the inventory became one of the top priorities of manufacturers and channel partners as they first tried to push stale products into the market before restarting full scale production.

V Rajiv, proprietor, Precision Electronic Components Manufacturing Company, comments, “The economic slowdown had affected everybody. The pressure on component suppliers had been immense due to lack of demand and piling up of inventory. Especially, exporters had to suffer major setbacks.”

By Himanshu Yadav

Friday, April 16, 2010: To survive in such a situation, companies took to various means. One such move was to cut down production to deal with the piled up stocks. As shared by Rooshad Patel, director, Hi-Tech Resistors Pvt Ltd, “We might not have incurred heavy losses but we certainly took up cost saving measures like reducing inventory and rationalising production processes to get the maximum benefit during the recessionary period.” Agrees Dinesh Banka, director, Novoflex Marketing Pvt Ltd, “The first measure taken by the manufacturers was to cut down on production as the distributors were not ready to pile up inventory after a certain level.”

Present scenario

In India, credit must go to the distributors and manufacturers who handled the situation better than their counterparts in other parts of the world. They avoided double and triple ordering during the slowdown, and are presently maintaing inventory for just a period of eight weeks, which is a standard waiting period for Indian customers to get the product delivered. But with the economic atmosphere in 2010 expected to be positive, companies are facing another problem—increased lead time due to rise in demand. Thus, less inventory has now become a problem for the manufacturers.

This has put a pressure on the manufacturers and distributors to manage stocks well without affecting their clients. As shared by Puneet Singhal, director, Inde Enterprises, “During the recession, we brought down our inventory by 20 per cent. Most of our imports come from the European market and, hence, product delivery time is more. As companies world over have cut down their manufacturing volumes, we are facing problem to timely deliver products to the customers. Moreover, we deal in X-products which require quick delivery.”

Vineet Kumar Gupta, CEO, Adytronic Devices, says, “For importers from China, the waiting period may not be too long. But since we are importing from the European market and purchasing material from genuine companies, it is taking more time to reach us. During the slowdown, all best-in class companies had resorted to cutting down on production. We were cautious in not piling up stock during the recession period but now if we do not get products in time and if the manufacturers keep us waiting for a long period to supply goods, then we may lose some of our customers.”

Inventory management

In order to combat this situation, companies need to effectively manage their inventory. The inventory management is the process to check the smooth flow of existing inventory. This can help the company in checking the rise and fall of stock before it affects the company’s operations. It also keeps tab on the cost associated with inventory in terms of tax and total value of goods. To effectively manage the inventory, companies can adopt various technical and marketing tools. Primarily, companies need to check the time aspect. From getting the raw materials on time to delivering the goods to customers as committed helps in running the production smoothly. Keeping a buffer stock is also necessary for management. Right documentation and accurate records also help in knowing the status of the stock.

Bharat Khandal, marketing manager, RS Components and Controls Ltd, shares, “Usually, companies keep buffer stocks in countries like Singapore due to their industry friendly tax regimes. But in India, companies avoid stocking because if the product is not sold in the market on time it has to be sent back to the manufacture and by that time it would lose its market value.”

Traders can also adopt ‘just-in-time inventory’ for which they can first streamline the process of their supply chain management. It is a quick and hassle free procedure to get goods in time. Under this model, a customer can call up the trader and place order. For doing so, the trader has to get himself registered with the manufacturer and place the order verbally over phone; the formalities can be completed later. As shared by D Malakar, director, Deepakshi Display Devices, “In other south Asian countries like China and Taiwan, one can place order just in time, but in India we don’t have such advantage. There minimum delivery time is up to one hour, while in India it is at least two to three weeks and sometimes it can be extended to eight weeks.”

Companies can also adopt various IT tools and software to better manage the inventory and supply chain, for example, ‘vendor management inventory’ offered by Avnet. This can also help companies to deliver just-in-time inventory as mentioned above. Adopting component and supplier management software can also keep companies ahead of their counterparts. But before adopting all these methods, companies have to scale up their budget for production and develop considerable stocks.

This has already been pointed out by our survey on manufacturing and investment activities in electronics industry in 2010. As per our survey, there will be at least 68.3 per cent rise in component manufacturing in 2010, with other industries also focusing on increasing their manufacturing. This denotes considerable rise in trading activities for which vendors need to be well prepared.

Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine

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