Addressing Non Moving Inventory

In a project organization, Incoming Material (IM) or warehouse section is an important function that receives, sorts, stores and issues the goods on a daily basis. When a good is received, the warehouse manager assigns it a location based on material type or project concerned and performs data entry in system to generate Goods Receipt Number (GRN). After receiving the material, it's marked with the unique code (the format is often locally decided by warehouse manager) and stored at designation space. As per the need, the project manager requests the warehouse manager to issue the material for the concerned project. Warehouse manager updates the quantity, status etc. of the material and Goods Issue Number (GIN) is generated post which material is issued for the project.

To maintain a lean project organization, it's necessary to keep minimum inventory in the warehouse. A high level of inventory means the trapped capital that could've been used in productive activities. It increases of cost of inventory to the organization and lowers Return on Assets (RoA). A high level of inventory can be caused for following reasons:

1. Delay in system updation: It may be possible that the warehouse manager has not updated the system during the issue for various reasons even if the material has been issued to warehouse.

2. Incorrect system updation: The materials are often received in sets/lots and issued in parts (fraction of sets/lots) as per the requirement. It leads to mismatch between inventory value available in system and in physical space.

3. Un-utilized or surplus inventory: It refers to the material that has been purchased but not used in the project.

4. Material purchased in much advance: The material may be purchased in much advance leading to higher inventory age before material issue.

5. Repeat purchase of existing material: It may happen that the available material is being repurchased.

Data analytics can be used to find how much inventory cost is trapped against a specific reason and corrective measure can be taken.

It's interesting to note that management is not only tracking the inventory cost but also the warehouse space. Warehouse space is a major concern before executing major projects as material inflow increase with projects. A 2x2 matrix can be insightful using cost and space as parameters.