This question came up in one discussion:
How to arrange proper project inventory control procedures?
Let us first see what is a project inventory and why is it different from any other inventory? Many companies do not have standard productions lines. They do not produce the same item over and over. Instead, they are project-based. They take a contract and deliver it as per the agreed specifications and timelines.
This is common in construction, and as well in the manufacturing of large machines. Also, in any other manufacturing with a high level of customization. Another good example would be IT projects, but those projects do not have inventory. So, not interesting for us today.
How to arrange project inventory?
We have two ways of arranging project inventory:
The inventory is arranged for the project only. If everything is planned properly, the stock at the project closure shall be zero.
Using stock from the warehouse;
In this case, we use our regular stock. In this case. we assume that part of the stock is already available. Hence, we need to get the difference only.
Project-specific inventory is easier to manage. But, requires someone dedicated to taking care of this particular project stock. If you have several projects running in the same location, it becomes messy. In construction, for example, it works perfectly. You store the materials on-site and aim to have nothing left at the end.
How you organize your store in fact depends on the nature of your business. In one of my previous assignments, many smaller items (screws, pipes etc.) were common across all projects. Hence, we always kept stock and just replenished. The remaining specific items were procured when needed. Having constant communication with the stores’ team is essential here. Share the forecast with them and have them ready for the next cycle.
There are two options for Inventory management as well:
1. Together with all other stocks of the company, but reserved in the system for the particular project.
Here the system has an option to block the stock for the particular project. Your re-ordering and issuing work is based on the remaining stock, not what you actually have in store. It is a good system but relies on the precision of the storekeepers. Be careful to update the reservations properly. Secondly, issue materials for other work from the remaining instead of blocked stock. Or else, soon your system may become unusable.
2. Organized in a special physical or virtual location.
You can either fence off a part of the stores, or create a “virtual” store in the system. And then everything planned for the project goes there. It is simple and works. As long as you don’t figure out at the year-end stocktake that you have opened five stores. And every one of them has still stock.
Now, let us see what is the difference between project inventory control and regular inventory control.
We have here two additional variables we have to take care off
- The project location.
in most cases, there will be an on-site store managed by the operations team. And this is the point we lose control
Especially in large construction projects we are not able to get all the required materials at once. imagine getting all the materials for a 20-storey building in one place? What a mess this would be.
Project inventory control requires Project management skills. Your stores’ manager needs to know how to read and interpret Gannt charts. Then, he has to arrange his workflow accordingly. As some projects are far away from the store, time must be taken into consideration in the replenishment plan.
Managing inventory in Projects moves the classic storekeeping into a full Supply Chain function. The responsible person needs to know what and when is coming in. Where the raw materials will be converted into semi-finished or finished goods. When is the deadline for material to be at the project site? And, that, at the end of the project, no unusable leftovers are remaining.
It is challenging. But the celebration at the end of a successful large project makes it worth it.