The Pros and Cons of Inventory Management

pros cons inventory

When coming up with the classic make-or-buy decision of whether to handle inventory procurement in-house or have it managed by your procurement supplier, it’s useful to weigh the pros and cons of the decision, especially as it relates specifically to the private sector and electrical utilities industry. Below are a few you might consider:

  1. Focus on core areas of value: Where do you generate the most value in your business? It’s almost certainly not in managing your inventory of parts. Every hour you’re not focusing on those non-core areas is another hour spent on winning in your core areas of value.
  2. Less business activities to support: Let’s face it, business is complex. Any area you are active in is another area you need to support for yourselves and your customers (both internal and external). By not managing inventory internally, that’s one less business activity you need to support internally.
  3. Economies of scale: The trouble with managing inventory internally is that you are managing it for only one customer, yourselves. This means a lot of inefficiency, investment and waste. A service provider that is managing many customers at once is able to optimize in several areas such as stock keeping, supplier negotiation, and logistics and supply chain, among others.
  4. Overall cost savings: Inherent in those economies of scale are cost savings that the inventory management services provider can pass on to you. Your total ownership cost of the inventory management function, and the business applications it supports, go down. And beyond the hard cost there is also the opportunity cost. The emergency need to pull away key personnel to work on inventory management is now removed, so those personnel can continue to work on core areas of value we touched on in #1.
  5. Increased revenue: Since you are focusing more time on areas that generate value, you also generate more revenue. Contracting with a service provider for turnkey stock keeping and inventory management helps you simultaneously increase revenue while decreasing cost, accelerating profit.
  1. Less general competency: By focusing on core areas, you are also removing some general competency in the areas of inventory product knowledge. There is that trade-off. But by working with a trusted partner in this area you can offload any need for this knowledge to them and focus on supporting your core business.
  2. Learning curve: Any time you adopt a new way of doing things, there is a learning curve. That’s why it’s critical to work with a partner that is responsive to help guide you through the transition.

As you can see the pros and cons can really be boiled down to the question of whether you want to build internal competency in all aspects of your business or whether you’d like to spend more of that time focusing on specialized areas where you can drive the most value (and therefore revenue).

To find out more about using the services of an outsourced stock keeping agent get it touch today to discuss your business needs and the services we can offer you.

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