A business is as healthy as its inventory. Because inventory is cash held. Inventory is capital. If you are analysing any business, one of the line items you want to look at in the statement of financial position (balance sheet) is the inventory item. How much inventory are they holding? How quickly are they turning over that inventory? A great business is one that doesn’t need to keep much inventory. So as a company strategist, you want to keep this number close, it tells a big story.
Several Ugandans are involved in retail businesses. Thus, they commonly classify their inventory as stock. Ugandan entrepreneurs take pride in having fully stocked shops. For many, they believe this is a sign of a healthy business. But this is a misleading business philosophy. It should only make sense if that inventory is turning over just as fast. That’s to say, the business is selling out that inventory, and restocking within the same month. But if you have stock lasting in the business over two months, that’s harming the business. And in the long term, most retail businesses in Uganda collapse because of the inventory problem.
For the case of manufacturing businesses, the inventory problem gets compounded as there are more forms of inventory. There’s inventory of the raw material inputs, there’s inventory of the work in progress (WIP), there’s inventory of the finished product and finally the inventory of the repair and maintenance spare parts. Of course, desires the other problem of stock out, that’s to say, having the demand yet lacking the inventory to fulfil that demand. Thus, businesses ought to innovate and craft better inventory strategies.
An inventory strategy would be one that looks keenly at the type of the business whether product or service business, the customer that’s being served, or having their orders fulfilled, the suppliers of the business, if it’s a product, you’re looking at the lead times, and then factoring in things such as the demand trends, seasonality and cycles.
A starting basis to inventory management would be an appropriate inventory management technology in form of software that should ideally link to the point-of-sale system to enable an automated rebalancing of inventory. From this database, one should be in position to run analytics thus enabling a classification of their inventory, seeing the fast-moving items, the value of the inventory at hand, expiry dates of inventory among other insights.
If you are an inventory-heavy business, inventory should be on top of your radar. Because often, inventory ends up sitting with no one in the business. It’s that thing that surprises everyone during stock-taking. And you realize that a business is sitting on this much value of product that’s about to expire, or some raw materials that can no longer be used by the business. For businesses with repair and maintenance spares, a detailed analysis of non-stock items, and the problems around the search strings need to be resolved. This is a top problem for all manufacturing entities in Uganda, the R&M spares inventory. And this is seen with double ordering, the same item having different names in the system thus resulting in over-stocking.
As the externalities of the business (inflation, interest rates, disrupted global chains) continue to weigh heavily on businesses, an inventory transformation is something that businesses could roll-out for quick wins and opportunity. Somebody in the business must be making sense of the inventory, its movement and its value. The devil is hidden in the inventory.