Inventory Risk Management: Why You Need It, And What It Protects Your Business From

Customers have come to expect businesses to have the products and services they need on-demand and built with the utmost quality. To ensure customer satisfaction, companies must mitigate risks within their supply chain. This will not only protect against unforeseen disruption, but it will foster an environment of stability and consistency that stakeholders and customers are sure to appreciate.

For inventory holding enterprises, interruptions to production flows within the supply chain can spell the end for profit margins and on-time deliverables. Companies that don’t regularly invest in risk-reducing techniques leave their work open to a range of disruptions and blockages, like the many we’ve seen from the pandemic’s devastating upheaval of supply chain operations.

Risk management is more than guaranteeing you have the right stock levels, or that you are cyber-secure – though these are important – it is a company philosophy that affects every system and certifies your resistance to outside influencers. In this article, we will explore a few of these risk-reducing strategies, and we will take a deeper dive into why they are necessary for your business. 

An introduction to inventory risk management

Why is inventory risk management necessary?

Inventory risk largely rears its ugly head in the form of unsellable goods, decreased inventory value, or delayed delivery. 

Many manufacturing and supply chain operations command huge amounts of goods; keeping track of one stock item among hundreds, or one SKU among thousands can be a daunting task. This is especially true as it applies to maintenance, repair, and operations (MRO) materials, which is often an overlooked area of supply chain management. If not properly handled with risk mitigation strategies in place, disturbances in normal operations can lead to devastating consequences.

What is inventory risk management?

Inventory risk management is the process of preparing your supply chain systems for external or internal risk, thereby lessening the damage or avoiding it altogether. For example, one strategy to alleviate risk would be to integrate AI-enabled inventory management software into your MRO management strategy, which allows businesses to optimize the appropriate levels of materials to avoid duplicates and shortages.

Increasing data visibility, upgrading enterprise systems, and scheduling preventative maintenance are all other recommended methods of adding armor to your metaphorical supply chain shield. 

Why should inventory risk management be a priority?

When all is said and done, inventory remains the greatest asset and biggest weakness to supply chain decision-makers. 

Using artificial intelligence to harmonize the data living in the multiple systems spanning your enterprise can provide your team with the visibility needed to quickly identify and reduce risk.

Purchase, storage, handling, and insurance of these goods or services is costly. Therefore, inventory should be considered monetarily, it is a high-value holding that often presents significant risk. The pandemic’s supply chain woes proved just how fragile our hold on this risk is. To satisfy stakeholders and maintain profitability, lessening the weight of that risk is crucial.

Your first step in this long quest is to understand not only what systems need to be put in place to create a more stable supply chain, but the value those inherently secure systems will have within your company. Thorough knowledge of the benefits of inventory risk management helps determine the best strategies for mitigation at your institution.

Why you need inventory risk management measures in place

Accurate and timely inventory management is the key to running a successful business. Strong risk mitigation strategies can ensure your manufacturing operations remain running smoothly. 

For example, increasing your MRO visibility into company systems via SKUs, data procurement, better software, or another form of risk management can help you avoid stock errors and track parts efficiently. Let’s take a look at some of the other benefits of inventory risk management.

Efficient inventory management

Holding onto stock costs money. Proper storage, handling, and transportation of inventory will leave you running into countless fees and insurances. Additionally, any capital owned by your company is liable to theft, loss, natural disasters, or going obsolete. Installing technology with natural language processing capabilities will identify inventory to guarantee the optimized levels of MRO inventory can keep you from experiencing delays or downtime.

Avoid stockouts

This risk management strategy helps you avoid stockouts or excess stock. Better planning, and including a space in operations for scheduled downtime, can help businesses minimize the number of days items may be low or out of stock.

Increase visibility

A large part of risk management is increasing visibility. With MRO inventory tracking control and huge subsets of data at your fingertips, companies now can spot usage trends, track the future needs for products, and predict when interruptions may occur.

Improved data insights

These newfound abilities culminate in data-led supplier relations. Upgrading supply chain systems with inventory risk management measures grant you deeper data insights – like awareness about which MRO items to sell, transfer, or keep at any given time. 

The advantages of proper inventory risk management are numerous, for one, the methods you can implement to protect systems from risk also usually improve general business operations; but they also prevent unforeseen risks from stripping away your profits and destroying your inventory.

What inventory risk management protects your business from  

Unreliable suppliers

A majority of businesses rely on suppliers to deliver inventory in the agreed-upon time and with the correct stock quality and quantity. The failure of suppliers to meet your packed schedule can cause production delays, stockouts, overstocking, and generally poor consumer attitudes.

With inventory risk management, your company is much more likely to weather any shift in supplier timing or inaccurate stock delivery. Moreover, with added visibility into your supply chain network, you can determine whether a supplier is indeed supplying inventory on time, in the right quantities, and has been consistently reliable.

Loss 

When MRO inventory is lost, the missing assets essentially become a risk to your production continuity. The ability to identify what was lost, how it was lost, and how to move forward is essential to prevent this from happening in the future. Mitigation measures like proper inventory tracking and employee training can prevent both physically lost products, as well as rogue spending to replace the missing items. 

Risk management in a modern age

Risk mitigation strategies take a variety of forms; however, integrating AI and machine-learning-enabled software within supply chain systems can tackle many of the problems we experience today.

Harmonizing data to optimize inventory ensures you are working with real-time information, allowing you to manage stock and mitigate risk effectively. 

Ensure the safety and success of your business by implementing these modern solutions. By considering the factors listed above, businesses can do just that, and minimize supply-chain disruption while adding value through smart management practices. To learn more about reducing supply chain risk through MRO optimization, download the white paper on MRO optimization today.

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