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Are you an eCommerce business owner trying to understand the next steps for streamlining your inventory system and regaining control over profits? If so, consider decoupling your inventory. Decoupling inventory allows you to create a more efficient approach to fulfillment that rewards greater efficiency, compliance, and scalability - without compromising customer service or profitability. But what does this process look like in practice? In this blog post, we'll explain exactly what is meant by decoupling inventory and how it can help you enhance the success of your eCommerce business. Read on for all the details!
Decoupling Inventory Definition
Decoupling inventory is a supply chain strategy separating the upstream and downstream supply chains, allowing each to operate independently. It reduces risks associated with uncertainty and instability in the global economy by maintaining minimum stock levels.
In decoupling inventory, a company creates buffers or pools of raw materials, semi-produced goods, and finished products so that production can run smoothly regardless of upstream changes. The goal is to create buffers outside the primary production process so that fluctuations in orders don't disrupt it.
For example, suppose the demand for raw materials suddenly decreases due to an economic recession or political destabilization. In that case, companies using decoupling inventory will have enough on hand to satisfy their manufacturing needs without having to wait while they replenish their supplies. Similarly, if demand rises too quickly for them to keep up with – say during a holiday season – they can access material from their buffer stocks rather than having insufficient resources due to order bottlenecks from suppliers or shipping delays from foreign ports.
Decoupled inventories help companies reduce costly order cancellations caused by unexpected fluctuations in demand or supply shortfalls; this translates into improved customer service and greater efficiency and profitability for businesses in the long run. Ultimately, these benefits enable manufacturers who apply this technique within their supply chain management operations to achieve a competitive advantage over other players in the market who need to use such strategies more effectively.
Related: How to Forecast Inventory?
Benefits Of Decoupling Inventory
Decoupling inventory is an excellent preventative measure that helps guard product manufacturing against slowing down, despite a shortage in raw materials, tool failure, or any other event that might motivate production delays.
Here is a breakdown of the benefits of decoupled inventory.
Flexibility
Decoupling inventory enables businesses to respond quickly to changing trends in customer demand by adjusting their production levels accordingly. Reducing lead times for goods and services also allows companies to make more informed decisions about where and when they place orders. This helps them take advantage of seasonal opportunities or special sales events and respond quickly to unexpected peaks in demand.
Customer Service
By decoupling the traditional linear supply chain, an organization can move away from a lower-cost 'push' model towards a higher-value 'pull' model that focuses on meeting customers' needs more directly through responsiveness rather than predictability. This allows them to deliver better quality products tailored closer to customers' requirements while decreasing turnaround times on orders, thus increasing customer satisfaction with their purchases.
Response Time
When organizations decouple their inventory, they can react quickly when experiencing changes, such as new product introductions or market shifts that could impact production schedules or other aspects downstream or upstream within the supply chain network. With shorter response times, businesses can minimize uncertainty while enabling greater agility across multiple channels.
Carrying Costs
Decoupled inventories help companies manage short-term expenses associated with holding excess stock (such as storage space leasing) and long-term costs caused by overproduction due to lengthy delivery cycles (waste resulting from expired goods). Companies operating under this structure have reported significant decreases in product wastage due to leveraging access points for ordering supplies just before peak periods, thereby avoiding expensive preordering containment methods needed for unforeseeable spikes and holding profits tighter margins can be achieved throughout operations given such scalability increases.
Cash Flow & Profits
Moving away from purely predictive models towards those that real-time factor behavior into forecasting patterns improves overall productivity, which has far-reaching effects, including maximizing available capital sources at critical junctures while achieving set profit goals over extended periods; this decision positively impacts revenues comparatively, giving companies even further reach during harsh economic climate's conversely allowing them easy expansion while driving up revenue figures during bullish markets too - all attributed solely through supply chain optimization techniques incorporating decoupled inventories into equation matrices helping create macro levels min max scenarios enabling firms increased capabilities without losing financial stronghold positions no matter how volatile external conditions may become.
Protects Towards Uncertainty
If manufacturers can't get the imperative number of uncooked substances to produce a product, the work-in-process production line slows down or comes to a complete halt.
To hedge towards uncertainties and build a resilient provide chain, the decoupled stock is stored at each stage of the manufacturing line, so no remembering the place a product is in the production phase, there are, with a bit of luck, more raw materials set aside to continue manufacturing without causing most significant delays.
This is useful for manufacturers that produce a range of merchandise with equal parts or ingredients.
How To Decouple Inventory In Your Own Business
Here is a step-by-step overview to fully apprehend how decoupled inventory works.
Step 1: Assess the present-day stock ranges of the uncooked materials or work-in-process at each decoupling factor throughout your production line.
Step 2: Review historic order statistics and strategically analyze developments to forecast demand.
Step 3: Calculate how many excess uncooked materials you can have enough money on hand after demand is met.
Step 4: Once you know how many uncooked substances are on hand, set up a predetermined inventory replenishment timetable based on the average delivery timelines to get hold of every material.
For instance, ordering wool from Turkey will take longer to receive than ordering yarn made in California if you're primarily based in the US.
Step 5: Keep correct inventory files and past order tendencies for every SKU, and adjust your decoupled stock buy orders accordingly.
The Different Types Of Decoupling Inventory Methods
The four main types of inventories are:
- Raw materials
- Work-in-progress
- Finished goods
- Maintenance, repair, and MRO goods.
Raw Materials Inventory
Raw material inventory consists of all the parts needed for making a product or providing a service. This includes raw materials like metals, plastics, rubber, fabrics, chemicals, etc., and other supplies necessary for the production process. By keeping these items on hand at all times in sufficient quantities, companies can reduce their lead time and ensure that they have the materials they need when they need them.
Work-in-Progress Inventory
WIP inventory consists of partially completed products or components that are in the process of being made into a finished product. It is essential to keep these items on hand so that production can continue without disruption, even if there is a delay in receiving raw materials or other components.
Finished Goods Inventory
Finished goods are items that are ready for sale or distribution. Companies use decoupling inventory methods to maintain an adequate supply of finished goods and control the cost associated with buying and storing them. This helps to ensure customer satisfaction by having enough stock available when orders come in.
Maintenance, Repair, and MRO Goods Inventory
Maintenance, repair, and operations (MRO) goods are items used to maintain equipment or machines. These include spare parts, lubricants, and other consumables that may be needed to keep production running smoothly. Companies can minimize downtime due to machine breakdowns or repairs by having these items on hand.
Related: What Is Buffer Inventory & How It Affects Your Business
Tips For Making Sure Your Decoupled Inventory Runs Smoothly
1. Plan ahead and clearly envision what you want from your decoupled inventory system. Make sure you know exactly how many items you need in stock at any given time and create methods for tracking them and predicting future needs.
2. Monitor lead times closely and adjust orders if necessary based on changes in demand or supply-chain disruptions. This will help ensure that you're not over or under-stocking items and helps keep inventory levels balanced.
3. Utilize technology to track your inventory. Automation of processes will help make sure that data is up-to-date and accurate, allowing you to make informed decisions about ordering and stocking levels.
4. Create clear communication channels between everyone involved in the supply chain process. This will ensure that everyone knows what's happening at all times, so there are no surprises regarding order fulfillment or delivery schedules.
5. Have a system for tracking shipments and orders from suppliers so you know exactly where each item is located at any given time. Be proactive with monitoring orders and reach out to suppliers if something seems off or delayed as soon as possible.
4. Optimize the placement of items within your warehouse or storage facility for maximum efficiency. When items are placed close together, it becomes easier to quickly identify when a product is running low or out of stock.
5. Regularly review your decoupled inventory system and adjust orders if necessary based on changes in demand or supply-chain disruptions. This helps you stay ahead of unexpected fluctuations in your inventory levels so you don't end up with too much or too little of a particular item.
6. Have a contingency plan if something unexpected happens with your inventory, such as an increase in demand or a delay in supply chain deliveries. This will help ensure that you can quickly and efficiently handle any issues.
Related: How to Liquidate Amazon Inventory
Conclusion
Decoupled inventory is essential for eCommerce business owners who want to keep production costs down while accurately predicting and managing their stock level. By decoupling your inventory, you can minimize the risk in your supply chain operations - and know exactly how much product you need to fulfill customer demand. If you're ready to start reaping the rewards of decoupled inventory in your own business, Simpl can help. We specialize in amazon order fulfillment so you can focus on what matters most: running your business. Get in touch with us today to learn more about how we can help you take your eCommerce operation to the next level.
Recommended: How to Calculate Inventory Turnover?
