Enterprise Inventory Policy (EIP) defines both the aggregate-level and the item-level inventory management. Each and every organisation that deals with inventory must have EIP and it shall be reviewed on an annual basis. EIP is a policy document that shall be agreed upon mainly between the CFO and COO as well as by leaders of New Product Development, Marketing, Sales, Procurement etc. This provides a framework within which all the above leaders are expected to operate and ensure best
customer service with a focus on optimum inventory level.
So what are all the components of EIP?
Enterprise Inventory Policy shall be considered as a Standard Operating Procedure (SOP) for all the matters pertaining to Inventory across the organisation. Wherever one comes across a dilemma or dispute related to inventory, EIP is the document to be referred. But at the same time, we also need to understand that this is not a static document, but a dynamic one, meaning it evolves as the time goes.
Enterprise Inventory Policy shall include the following:
-Define the types of inventory
-Map the network, echelons and nodes
-Establish the min-max levels of each and every nodes
-Identify the prescribed transportation modes between nodes
-Define the lead times between nodes
-Inventory accounting and valuation methods
-Inventory replenishment system
-ABC classification systems and its criteria
-Calculation of average inventory and inventory turnover
-Draw annual inventory profile
-Supplier Selection Criteria
-Various costs associated with inventory
-Inventory protection methods and insurance
-Risk management plan and disaster management plan
-Push-Pull frontier etc.
Though this list seems exhaustive, but EIP need to be specifically crafted for each and every organisation based on their industry, product and business model. There is no specific studies available to demonstrate the benefits of EIP, but one can expect that EIP will certainly help their organisation to streamline the business processes related to inventory and can bring significant savings on account of inventory.