Inventory Management

Our manufacturing industry is contributing to producing the largest greenhouse gas emissions. In fact, when you

consider direct and indirect emissions as contributors to carbon footprint, industry’s

share of emissions rises to nearly 35%. This makes industries the no. 1 source

of greenhouse gases of any sector.

Rising inventory can become a source of worry for any manufacturing company. Sometimes, inventory rises due to a suddenly cancelled order. It can also rise when there is an unexpected downturn in the industry due to industrial slowdowns. Once inventory rises, it becomes a challenge to prevent its wear and tear due to issues like rusting etc. Taking care of inventory becomes a job in itself and consumes valuable resources for an organization. It is also every company’s responsibility towards the environment and nature to ensure that large amounts of material are not dumped or turned into scrap. So, what is the way forward? How can companies tackle this challenge?

Inventory is treated as a current asset in the books of manufacturing companies. It is important because inventory is a physical proof of the cost that went into procuring goods for the company. Inventory that is lying idle not only consumes space but also loses value with each passing day. Decay, damage and wear and tear of the goods are the primary factors for this. No matter how carefully and systematically the inventory is stored, it is inevitable that some damage and loss will occur. What is the way out of this then?

In 2020, the world was hit by a pandemic of serious proportions. Slowly, we made peace with the reality. Covid-19 has impacted the business world and economies in a big way. The business world thrives on rolling – from OEMs to dealers, from dealers to retail sellers and from them to individual customers. This cycle of rolling was hit at its core by the lockdown. Against Covid-19, we have vaccines but what do we have to fight against this clogged up Industrial cycle with unending inventory?

As the financial year end approaches, there are some set routines each company goes through – following up on outstanding invoices and ensuring revenue realization, provisioning for invoices received from suppliers, taking stock of tax arrears etc. These are all to maintain a positive cash flow and be ready for yearly closure of accounts. To this, one needs to add an often ignored by critical step of “Inventory Audit”.

When the lockdown was declared in India, many companies were brimming with stocked-up material in anticipation of a strong 2020 business-wise. But the lockdown brought all business activity to an absolute standstill all over India. Large-scale companies could reasonably afford to keep inventory and absorb the economic shock that came with it. However, many small and medium-scale companies buckled under the impact of rising inventory. What made it worse is that with each passing day, that inventory was depreciating. Surely, there has to be a better and more productive way of managing inventory.

The manufacturing industry is known to produce jewels, not of the ornament variety, but figuratively speaking. A lot of innovative thinking, design, understanding of customer requirements goes into components, parts and machines that are manufactured. In most cases, the parts serve their intended purpose with varying degrees of success. But this is just one side of the story. What happens when the part is never used for the purpose it was manufactured for, When it keeps lying unused in stores, and even worse, when it is not picked up by the customer from the manufacturer?