Finished Goods Management Strengthening

Finished goods inventory dollars as a percentage of sales are on the decline.

Finished goods inventory practices have been on the upswing since 2010, according to a new report, “Finished Goods Inventory Management: How Today's Outcomes Measure Up to Past Results,” published by the Tompkins Supply Chain Consortium.

“While business conditions are not back to where they were before the Great Recession hit in 2008, companies have been strengthening their finished goods inventory processes,” says Bruce Tompkins, executive director of the Consortium and author of the report.

As a result, more than a third of companies studied experienced a 1-9% decrease in finished goods inventory dollars as a percentage of sales between 2011 and 2012, the report states. Overall, these results indicate a significant decline in finished goods inventory dollars as a percentage of sales during 2012.

General reasons Tompkins sites for higher sales than finished goods inventory levels:

  • Sales growth for many companies
  • Better tools and technology for managing inventories (e.g., sales and operations planning)
  • Improved forecasting from customers
  • Increased focus on inventories
  • Improved planning practices and tools
  • Cost reductions and increased investments

Tompkins concludes that reduced inventory levels did not appear to have a major negative impact on service levels. In fact, customer satisfaction levels increased for 44% of companies and remained the same for 44%. Twelve percent saw a decline.

Nevertheless, Tompkins says several areas still require attention. “Improvements in processes are necessary for finished goods inventory to be reduced further,” he explains. “In this year’s survey, processes ranked first as a key area for improvement.”

Companies are also seeking stronger collaboration and shared responsibility for setting finished goods inventory targets, accountability for inventory levels, and who is charged for/owns inventory.

 

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