Everyone Has a Role to Play with Inventory

Over the past few decades, business structures have shifted from siloed departments to integrated teams, where collaboration is key. This evolution is especially evident in inventory management, where nearly every department now plays a vital role in ensuring the smooth flow of goods and services.

Business has become more collaborative across departments

Business environments, or the way in which companies manage their resources, have changed over the last 30 years.  What used to be a centralized, hierarchical structure has evolved (some would say, ‘devolved’) into teams with shared responsibilities and collective accomplishments. Businesses worldwide stress the needs and benefits of collaboration and team building. The results can lead to better outcomes for both the companies and the individuals involved.

A similar metamorphosis is occurring with the sector of businesses managing inventory. Previously, only the purchasing agent spoke with suppliers about product requirements and specifications. Now, engineers reach out directly.  The accounting departments were only concerned about the financials of the company, but are now involved in purchasing and operational decisions.  The shipping and receiving function needs to work with the rest of the warehouse crew and production to get raw materials quickly to the right location and products out to customers with the coordination of shippers. While departments used to focus solely on their own responsibilities, now it takes a cross-functional team to coordinate the movement of goods.

Here are some examples of how roles have changed in distribution and manufacturing processes:

Shipping/receiving

The lowly receiving clerk function of many years ago has turned into a scanner-packing data ninja impacting the supply chain for production and the customer service area of sales.  Shippers’ trucks now run on tight schedules, so receivers need to unload, scan, quality control and put away to designated locations quickly to meet production and customer demands.  Accuracy is important because an error can mean the holdup of a production line, or a delivery to a customer.

Impacts:

• Production – in an assembly or batch production environment, knowing when raw materials have been received may be the trigger for the start of the production run.
• Operations – effective warehouse management depends on the raw or finished goods being in the right location (warehouse, bin) as designated in the software.   Searching for items on hand adds labor cost to operational overhead.
• Sales – the sales department relies on the finished products being in the hands of their customers by expected dates.  Delays or confusion in the shipping area leads to additional labor cost and customer dissatisfaction.  Coordinating with carriers to ensure timely delivery involves increased technology and communication.

Procurement/purchasing

These functions are sometimes separate, and sometimes they are the same person, but the collective role cannot be underestimated in the outcome of the business.   Procurement is about finding the right suppliers and sources of product or raw material.  Purchasing is setting in motion the delivery of those raw materials (in manufacturing) or complete goods to the right distribution center at the right time.  This involves timing of deliveries, effective communication and the financial resources to make it all happen.

Impacts:

• Production – timely raw good deliveries are critical for batch runs.
• Accounting – funds must be available and coordinated to meet supplier demands
• Operations – having too  much or not enough inventory affects carrying costs
• Sales – inadequate purchasing affects customer fulfillment and satisfaction

Operations/warehouse management

Managing a warehouse is like being the host at a party.   You need to make sure you have everything on hand to satisfy everyone, while people come and go constantly.  The person who does the putaway of the goods received will probably not be the person who does the ‘picking’ for the customer orders, so a well-organized warehouse is a must.  Operations will be concerned about rotating stock in cases of lot and serial number control, managing access to shelves and bins, responding to production or shipping staging area requests, and the safety of workers.

Impacts:

• Shipping/receiving – coordinates for placement and space limitations of arriving goods.  Also, once pickers have assembled customer orders, they prepare the orders for outgoing shipment.
• Production – manufacturers need the raw materials queued up in staging area in preparation for batch runs.  Operations usually coordinates picking of these items and placement for production.
• Sales – ensuring timely disbursement of products, as well as the correct packaging and appearance of the product, ultimately impacts customer satisfaction.

Production

At the heart of a manufacturing company is where the finished goods are produced.  This may involve a job shop, batch, assembly or continuous flow processes.  People here rely heavily on the procurement and purchasing agents to have the raw materials in stock, and the operations crew to stage the materials for the production line.   Plant managers are ‘under the gun’ to coordinate materials and available labor to manufacture the goods necessary.

Impacts:

• Sales – customer demand drives the production facility.  Breakdowns in equipment or shortages  of labor delay deliveries, and ultimately customer satisfaction.  The relationship between sales and production should always be close, yet leave room for adjustment.  Sales wants to make customers happy, but production must balance a lot of resources to meet demand.
• Shipping/Receiving – production stays in touch with the receiving personnel as items arrive, and when ‘special’ orders are needed.   They must also work together when custom project orders are coming to completion for delivery to the customer.
• Accounting – any changes to production schedules or materials required can impact the financials.  Plant or material managers must voice needed changes to the accounting personnel.

Sales

At the forefront of every business owner’s mind floats the constant obsession to meet or expand sales to customers.  And while the sales function does drive the business, it takes methodical and honest planning to achieve sales goals.  This involves looking at current demand and anticipating future orders based on expected demand.  Salespeople must then translate expectations into specified product requirements in the future.  If the budget is set too low, customers are left without products.  Plan too high, the warehouse bulges with too much stock, and workers mull around waiting for work.

Impacts:

• Production – material and labor schedules are based on expected demand.   Some of the most significant fixed costs are tied up with production, so using the resources at their peak performance adds to the company’s value.  Idle time drives it in the opposite direction.
• Operations/warehouse – similar to production, warehouse expenses and resources will be utilized based on the expectations from sales.  Too much stock or not enough adds to carrying costs, or expediting costs related to inventory shortages.

Accounting

Authorizing funds for inventory purchases is this department’s primary role regarding inventory.  Inventory is usually the largest asset class on a distribution company’s balance sheet.  Purchasing determines the needs through forecasting and requisitions, but accounting must pay the bills when they come due.  Being a part of the financial planning for this part of material management allows finance to balance the needs of production with what is possible for the company.  Unrestrained purchases can put a financial bind on the company’s ability to get funding.  Two functions they serve are: 1) comparing shipping documents for items received against purchase orders and supplier invoices, and 2) overseeing the successful completion of the (usually) end-of-year physical inventory count.  It is also responsible for tracking the outstanding accounts payable and receivable around inventory.

Impacts:

• Operations – approves the budget for materials requested for a period.
• Shipping/receiving – receives shipping documents to compare against bills
• Purchasing – approves funding for purchase requisitions

Management

All members of leadership need to be aware of the operational and financial impacts of inventory control.   This usually takes the form of reports, including Sales by Item, Inventory Turns and Margin reports.  It also involves reviewing the overall layout of the warehouse, and how the different functional areas are working together as a team.

How do you get the different areas to work together?

A long-running tool in management for controlling the inventory levels is the Sales & Operations Planning meeting or ‘S&OP.’ The primary members of the meeting are the production and/or warehouse manager, the sales department, and a member of accounting.  Staff for these departments start compiling data for their area weeks in advance: sales determines the projected sales volume; production analyses their current capabilities in terms of manpower and equipment, and finance determines funds availability.  

At the S&OP meeting, the sales manager usually leads with the expected or projected sales for the qualifying period, usually the next month or quarter.  Production will attempt to match capabilities with the sales projection, and accounting will advise if funds are available to support the operation for that period.

Once the goals have been agreed upon, the company executives sign off on the plan, and actions are put in place in each department to meet the stated goals.  This collaboration results in each department knowing what to expect for the short-term future and can plan for the materials and people needed to accomplish it.  It also holds everyone accountable to meet their stated goals, and not waffle on unspecific promises.

Inventory management is a process, not a task. While many people have a role in the supply chain, they must all work in unison to complete the process successfully. Management needs to understand this to gain total control of the inventory/supply chain process and make it work within their company.

Ensure efficient collaboration across departments

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Key takeaways

• Today, effective inventory control involves input from multiple departments, including sales, production, accounting, operations, and procurement.
• What used to be a basic task now requires accuracy, speed, and the use of technology to meet tight production and customer deadlines.
• Timely buying decisions impact cash flow, production schedules, warehouse capacity, and ultimately customer satisfaction.
• A well-organized and responsive warehouse enables accurate picking, quick turnaround, and seamless support for both production and shipping.
• Overpromising or underestimating sales can either overwhelm production or result in excess inventory that strains resources.
• Sales, operations, and finance must collaborate regularly to align business goals and ensure everyone is accountable to a unified plan.

Frequently asked questions

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