QualityInspection.org

Quality Assurance, Product Development, and Purchasing Strategies in China

You are here: Home / Supply Chain / How importers can manage their inventory effectively

How importers can manage their inventory effectively

by

Most importers act as wholesalers, meaning that they keep stock in a warehouse in their country and then deliver it to their customers. Of course the purpose is to pre-sell the products and to get them just in time to fill domestic customers’ orders. Unfortunately it seldom works this way.

There is a harsh reality out there. Retailers want to be able to replenish their shelves without placing orders 3 months in advance. And production is often late, sometimes 2 months behind schedule.

So there is a tradeoff. Importers have to balance two types of risks:

  • The risk of buying too much, of immobilizing capital and paying interest on a loan, and of being unable to sell a part of the inventory at a profit;
  • The risk of buying too little and losing sales, and of disappointing some important retail customers.

Can importers take some measures to reduce both of these risks? Absolutely.

I liked the comment left by a reader on a previous post (about Stock products in China) so much that I am pasting it below:

We are working with several of our more cooperative suppliers to (a) move to reduce work in process inventory – many of them carry weeks’ of WIP stock, even for simple products; and (b) move our own ordering to a continuous “replenishment” process– each week, we tell them what we’ve sold, and have them produce that much, of those products. This is a big change but is in line with current lean thinking. One exception: we have asked factories to keep 1 – 2 crates (10% of a container load) of our highest volume part number (“A”) on hand as finished goods in case another product is delayed. If a crate of product “C” is delayed, they have my standing direction to put an extra crate of “A” and get the container to port. Our goods are very heavy compared to sales value, and we can’t afford to send containers that are partially loaded. But neither can we afford delays. So we tolerate a little excess shipment of product “A” to keep the pipeline flowing.

These are clearly very good ideas that can be implemented by other importers.

For further reading about best practices in inventory management: Better sales forecasts and more flexible supply chains.

Comments

  1. I Have a Great, New, One of a Kind Product. Safely Fill Fuels and Fluids.
    Avoid splash-back, dripping and spilling on your vehicle or garage floor.

    I am seeking an investor. I need up to 100K to purchase inventory to fill wholesale orders. I’m paying 20%. If you are interested, or know someone that might be, I can be reached at ammar@tampabay.rr.com.

    Best regards,
    Mark DaSilva, President
    Am-Mar Innovations, Inc.

  2. Hi Renaud. This is an excellent post. I would also add that for contract manufacturing situations, having a PO in place from a customer would be absolutely vital.
    Of course, I think the purpose of this article is focused more on generic type products in which case good forecasting tools can help in calculating order qty’s. For seasonal items we usually use the qty sold from the same month from the previous year (plus or minus a % factor based on growth/shrinkage).
    In the case of non-seasonal items we use the sales of the last 90 days divided by 3 to get average monthly sales. Then you can use these projections plus open orders to forecast out what demand will be in the coming months. At the risk of shameless self promotion, we do offer a back office software application that helps in this process called VISCO (www.viscosoftware.com).