10 Questions to Diagnose Your Inventory Health

Are you able to break down your operating inventory into the three major categories when reporting levels—safety, replenishment and excess or obsolete stock?
Is your company using the most effective method to calculate your safety stock levels? Are you using statistical formulas that incorporate the accuracy of sales forecasts, required production lead times, manufacturing schedule adherence and service-level data for each SKU? Or are you using a simple rule of thumb such as “all products made in factory ABC need 15 days of safety stock.”
Do you recalculate safety stock levels on a regular basis to ensure they are up to date?
Who decides key inventory-related policy such as striking the right balance between customer service and cost-effective product inventory levels?
Who determines the optimal frequency for producing or ordering products? A cross-functional team or only production planning or sourcing managers?
How do you determine the frequency for ordering and inventory production if it’s not set solely by factories or the supply organization? Do you consider calculations that minimize the overall cost such as inventory and changeover costs? Do you base frequency on negotiations between the different parties involved and factor in upcoming events such as promotions and uncertainties like bad weather?
Is the optimal order or production frequency calculated on a regular basis as part of a continuous improvement process?
Do you have regular visibility into excess and obsolete stock, and is it linked to targeted action plans to sell off or reduce this inventory?
Do you perform root-cause analyses on excess and obsolete stock and know how they are linked to action plans that curb more excesses from being created?
Do you apply the above practices to all parts of your inventory (finished goods, raw material, works in process and spare parts) and in all organizational entities?