On-Hand Inventory: The Best Way to Reduce It
By: Erin Mahan
Most business managers will tell you that a high level of on-hand inventory is a major cost to a company. Excessive on-hand inventory means that goods are not being moved, causing a loss of cash flow for the company. It begs the question then, what is the best way to reduce this?
General vs. Specific Software
The best way to reduce on-hand inventory is to have an efficient way of tracking it. Many companies, specifically paper and film converters, brokers, and corrugators, use an off-the-shelf method like a Microsoft Excel spreadsheet, to track inventory. But is this really the best way to go? For some industries, general software like Microsoft Excel is a sufficient method of keeping track of inventory. However, the paper industry is unique in that it demands a more specific software to track its inventory due to the complexity of the product.
Problems that can arise
For paper companies, the use of general software over paper industry-specific software can create some problems. Problems with inventory visibility arise, making it harder to meet customer orders. Administrative time is used to track orders that could otherwise be put to better use. Also, the problem of employee theft could arise due to the inability to know exactly how much inventory is present. Finally, problems within both sales and purchasing arise because the exact amount of inventory is not known. As a result, the seller is left with sitting inventory, and the purchaser does not know how much he or she needs to buy.
A Case Study
Gleason Industries, a paper converting company on the west coast, is an example of a company who uses the PaperSoft Enterprise System, industry-specific software, to track its inventory.
Prior to PaperSoft, Gleason Industries struggled with inventory control. The system they used was incapable of tracking inventory in each and every business process. It made running their manufacturing firm tough because it required that most of the work be done by hand. Implementing PaperSoft provided Gleason with better inventory visibility. It gave them the ability to purchase individual rolls or pallets of paper by their unique characteristics without the use of a part number.
Over the last two years, Gleason Industries has experienced amazing results using the PaperSoft Enterprise System. They reduced their on-hand inventory by 53% due to their ability to control inventory better than before. Overall, PaperSoft allowed Gleason to save an average of $160,000 annually in interest expense as a result of the reduction of 3.2 million in on-hand inventory.