TT Club urges more effective inventory management to reduce supply chain risk

TT Club, the specialist liability insurance provider to the international freight and logistics industry, said a focus on a much-overlooked aspect of supply chain operations can significantly reduce risk. Systemic stockholding, order flow and other inventory management processes need to be effectively controlled. 

Utilizing analysis of past claims relating to cargo theft within the warehousing and distribution arena in particular, TT has concluded that risks to goods escalate in environments characterized by confusion and disorganization. Adherence to systematic processes is therefore paramount. Inventory management is so central that it defines the very system by which this effective organization is maintained.

“A failure to exercise such systematic control can have enormous risk consequences for security, reputation and contractual liabilities,” says TT’s Josh Finch. “Inventory management is an aspect of the supply chain that often runs quietly in the background until something goes wrong. Small issues can quickly turn into large and costly errors if they are not observed and rectified.”

TT acknowledges that data communication and the traceability of goods are key to sound inventory management and the mitigation of errors. The data interfaces between various software systems that are employed to manage the flow of goods including Warehouse Management System, Order Management System, Transport Management System and Enterprise Resource Planning should ensure that actions taken in one system are recorded in the others.  Breakdowns in communication between systems can be difficult to identify but may lead to costly errors.

In minimizing such errors, traceability throughout the supply chain is crucial in uncovering the discrepancies promptly. The ultimate goal is to provide full visibility of goods as they move through the supply chain. A well-designed system should systemically mirror all physical movements of goods and be particularly focused on circumstances where visibility and therefore traceability break down. Most commonly this occurs when a user fails to adhere to the correct process, but operations should also consider where gaps in process lead to a breakdown in traceability.

“Stock that is not traceable is at risk,” explains Finch. “It may be stolen or may simply go missing, making it difficult to determine where the failure has occurred. It is crucial therefore that supply chain operators responsible for managing inventory seek to maximize traceability throughout the entire journey of a particular item of stock.”  

The consequences of inadequate inventory management can be severe, extending beyond the cost of cargo loss to risks of negatively impacting commercial relationships. Inventory management plays a key role in fostering a security culture within the supply chain. It should enforce procedures, maintain traceability and respond to discrepancies effectively, resulting in a secure and efficient supply chain operation.

Photo credit: iStock/ maroke

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