Inventory management vs. inventory control

Is there a conflict between inventory management and inventory control? Well, sort of. Not that most of us care, but the purists can get a bit savage in defense of their position(s). To us, it brings to mind the endless 18th century theological debates about how many angels could dance on the head of a pin.

Pointless, but then so is the head of a pin.

The research is rife with differing opinions and definitions regarding what constitutes inventory management and what qualifies as inventory control. One body of thought holds that inventory management is about "placement" (whatever that means), reordering, and receiving/storage of inventory. Another maintains that inventory control is about location, reordering transactions, taking physical inventory, and cycle counting.

Still another guest expert promotes the purposes of inventory control as being to reduce slow-moving inventories, to avoid overstocks, and to use inventories effectively, consciously balancing investment against the monetary consequences of unfilled orders. He follows that thinking with eloquent discussions of some not-so-advanced concepts of min-max, two-bin, ABC stratification, and 30-day order cycle reviews to govern replenishment actions.

Amidst the cacophony of voices weighing in on the subject, Jon Schreibfeder is probably the most cogent writer in the field today. He, btw, treats inventory management and control as a holistic set of simultaneous concerns.

Why is this important?>
All too frequently, we collectively jump all over inventories as an example of an area where supply chain management can contribute to corporate financial performance. The focus is on reducing inventories and their attendant investments, thus beefing up the corporate return on assets.

Sad. 20th century mentality in action. All wrong for the 21st century. Not that we shouldn't be reasonable and prudent about inventory investment, but ...

Our real contribution is not to continually cut inventories (despite the importance of getting the junk out of the attic). It is, rather, to have the right inventory in the right locations to satisfy customers—if not make them ecstatic. The positive impact of high customer service levels, coupled with managing the required investment carefully, is incredibly more powerful in elevating corporate performance than simply taking a hatchet to whatever inventory happens to be close at hand.

So, in our view, this inventory subject must be approached holistically, integrating planning (management) and control (transaction execution) for strategically optimal results. This perspective means that focusing on specific and limiting definitions of elements of either management or control (however they are defined) is a loser's game.

All the pieces of the puzzle
Not only is it important to work on both management and control components, irrespective of where their definitions might fall, but it is critical to recognize, and take decisions and actions based on the understanding that what we would call inventory management—planning and strategies—does have at least two distinct levels of application.

The first circle of planning begins with key elements that many inventory specialists give little thought to, which is why a strategic supply chain perspective can make the difference between success and failure. The process actually falls into what we usually think of as facility planning, beginning with geographic location(s) and site selection.

The strategic placement of facilities is, done correctly, driven by customer locations, customer needs, customer order profiles, customer/product linkages, and customer service requirements (influenced, in turn, by the needs of the markets the customers serve). The process includes development of product profiles for specific facilities and specific missions, and must include inventory profiles to support the initial view of requirements.

Subsequent building layout then considers the physical and movement characteristics of the pro forma inventory to prepare high-level layouts and flows for products that are floor stacked, in pallet racks of various types, in case racks, and in shelving, for example. Preliminary slotting (discrete location), based on future expectations extrapolated from historical data, defines the go-live facility/inventory profile.

The devil and the details
Subsequent planning is then based on operating experience and typically tweaks the initial set as a result of product and order profile changes, customer gains and losses, demand shifts, and technology changes. Changes in sources and suppliers, as well as in their capabilities, can affect both necessary inventory holdings and the parameters of replenishment order cycles and quantities.

This is where we deal with the nitty-gritty of reorder points, economic order quantities, replenishment cycle times, risk periods, mean absolute deviations, safety stock, forecasts, seasonality, and lumpy demand.

There are some basics, though, that cannot be ignored. Inventory-related transactions must be near-perfectly executed, with extreme discipline and total accuracy. Anything short of that begins to erode the quality of the data that is supposed to define inventories, leading in turn to genuine risks in supply chain performance and customer satisfaction.

At core, unless execution is striving for perfection and stock-level records are absolutely accurate, both inventory planning and inventory control are somewhat abstract. Abstraction was good for Picasso, not so much for consistently creating perfect orders for customers.

When errors are detected, it is not enough to correct them. That might satisfy the accountants, but systemic problems demand systemic solutions. So, immediate action by a highly capable internal SWAT team, using the root cause analysis and problem-solving techniques that have been standards for decades, is definitely called for. Beyond a team intervention, fixes need to contain mechanisms to virtually assure accuracy, such as scans, electronic confirmation, check digits, and reconciliation processes.

It's all about flawless execution, whatever it takes. Putaway in predetermined locations, count verification in both putaway and picking. SKU number validation. Near-immediate dock-to-stock performance and system entry. Systems and technology are big enablers, but, absent up-to-date tools, processes must make up for their lack.

A final shot
In short, don't worry, be happy, mon. Differences and distinctions between inventory management and inventory control are artificial contrivances, and if pursued, can take your eye away from the ball.

Taking care of business in accuracy and discipline in all things related to inventory will put you on the road to effectively managing and controlling.