Inventory Management Function Descriptions

When an organization is trying to implement a systematized inventory management process or trying to improve the one that is already in place, the real life tactical question arises as to what the functions of this process should be and who should do what on a day-to-day basis. The following list offers one way to break the process up into functional areas of responsibility which should have all or some reporting responsibility to the one responsible for the material management of the organization. Depending on the total value of inventory, the importance of inventory management and the size of the organization, these roles may be satisfied by either clerical or managerial staff, but the importance of the function needs to be paramount to upper management.

Inventory Quantity Management
(typically reports directly to Material Management)

• Maintain the location master data within the ERP system
• Verify the item master data within the ERP system
• Verify system BOMs and shop floor backflushing transactions
• Perform/Monitor all inventory transaction processing: Issues and Receipts
• Assure valid inventory quantities throughout the system for all inventory items and locations (the goal should be 99+% accuracy)
• Develop and conduct a cycle counting program
• Integrate with Engineering, Inventory Valuation Management, Purchasing and Operations

Inventory Valuation Management
(typically reports directly to Accounting)

• Perform standard item cost and cost roll-up maintenance
• Track and validate last cost and average cost updates
• Continually assure valid inventory values throughout the system for all inventory items
• Analyze cost variances and periodically update the standard costs
• Integrate with Inventory Quantity Management, Purchasing, Engineering and Operations

Purchasing/Vendor Management
(typically reports directly to Material Management)

• Review and maintain open purchase orders for required adjustments
• Create and maintain new purchase orders per material requirements
• Create and maintain new purchase orders per outside service requirements
• Assure the need for material before purchase orders are created
• Maintain relationships with venders and work to improve the integration with each
• Integrate with Inventory Quantity Management, Inventory Valuation Management, Engineering and Operations
• Integrate with Master Planning to determine purchased part requirements

What other functions wold you include?

Effective Inventory Management Leads to Business Success

Aberdeen Research benchmarked the people, processes, technologies and metrics associated with inventory management and determined that Best-In-Class companies are able to continuously manage their inventory throughout their supply chain to improve customer service levels, forecast accuracies and perfect order metrics. They defined Best-In-Class as companies that had:

• 97% Average Customer Service
• 15 days Average Cash Conversion Cycle
• 95% Perfect Order Performance
• 87% Average Forecast Accuracy at the Product Family Level

These companies are able to continuously manage their inventory throughout their supply chain to improve what they deliver to the customer, which encompasses more than the specific product or service that they deliver. Other aspects of what is delivered that don’t show as specific items on the invoice, but are improved with effective inventory management, include total order lead time, product quality, ease of doing business and the ability to deliver changes to the product or service without having to go through major business changes.

Regarding inventory management, successful companies follow the principles of Closed Loop Inventory Management which include the ability to:

• Determine safety stock targets for inventory at critical nodes in the supply chain.
• Replenish inventory into distribution buffers based on customer demand.
• View end-to-end inventory while providing available to promise inventory.
• Respond quickly to market events while executing the inventory requirements.
• Segment inventory based on customer service requirements.

Although most involved with business management will admit that the above impacts on delivering to the customer are reason enough to make inventory management improvements a priority, there are also internal benefits to the organization from becoming Best-in-Class that should be mentioned:

• Best-in–class companies are 10 times more likely to have reduced their inventory carrying costs year after year.
• Best-in–class companies are 7 times more likely to have reduced their warehouse labor costs year after year.
• Best-in–class companies are 63% more likely to practice centralized transportation planning.

Whether it is via the successful pursuit of Lean Enterprise Performance or effective implementation of ERP or Supply Chain principles, improving the performance of inventory management will improve the organization’s total customer delivery performance.