’’Scrap recycling is an inventory-based business, so the best companies understand all the dimensions of their inventory as it is critical to driving profitability’’ says Mark Valdes-Dapena, scrap industry veteran and Senior Product Consultant at AMCS.
’’While purchased scrap remains unsold, it is just tying up valuable working capital and occupying premium yard space. A scrap recycler needs to understand the exact levels of inventory it has, it’s status (raw material, work in progress, finished goods), location and cost valuation. A modern software-based inventory solution makes it possible to have this information available in real-time at your fingertips so you can take smarter decisions.’’.
Despite widespread acceptance of this view, many scrap companies have no automated inventory system or are managing it with a combination of manual, paper and spreadsheet processes. This is inefficient, increasing the likelihood of recording errors leading to poor outcomes in revenue and margin leakage and slow inventory turnover.
Automating your inventory management should be your starting point and these best practices will give you the best chance of success.
1. Automation, Automation, Automation
Automating all inventory management processes reduces manual error, increases visibility and control
The challenges of scrap inventory management demand a fully automated and robust solution that has been designed for the specifics of the sector.
The base automation functionality should include:
Inventory tracking across yard locations as well as intracompany and intercompany transfers
Automation tools including barcoding, RFID tags
Digital grading and inspection apps that allow yard staff to inspect, grade, count classify and re-grade material
Integration with inbound and outbound truck and floor scales to minimize data entry and errors
Robust controlled processes (subject to multiple authorization controls) to record inventory adjustments in value, count and classifications
Accurate valuation of inventory based on a perpetual weighted average costing which can incorporate both landed and other costs including production, freight and tolling etc.
Demand planning tools to facilitate accurate planning of production based on sales orders
Real time reporting of inventory positions
Automatic updating of the finance system at month end closing
2. Track scrap inventory through your recycling value chain
Accurate real-time inventory management is now possible using digital technology to track the progress of your inventory from receipt at the scale, initial grading and inspection, through your processing and into finished goods. This tracking is made possible through use of barcodes and digital mobile applications.
These solutions make it possible to track and audit all transfers, re-grades and transfers into finished goods that are available for sale. The result of this is being able to locate your stored scrap easily when a customer wants it, or you want to process it.
3. Use Analytics to get valuable insights into your inventory and its valuation
‘If you can’t measure it, you can’t improve it’ – Peter Drucker
Business Intelligence tools and standard inventory reports can provide you with detailed insights into accurate inventory position and valuations, re-grades and transfers as well as finished goods.
These insights are invaluable for all your purchase, sales and operations teams.
It gives you knowledge of what affects margin including assessment of margin rates when prices are rising or falling. This means you can recognize times when margin might suffer and make adjustments that benefits your revenue.
Reporting tools also help you understand your stock levels, enabling you to analyze seasonal trends and impacts on stock levels. This helps you make decisions on when you might need to buy or sell to optimize your inventory.
You can also get data on your suppliers and customers, including those who are most profitable to buy from and sell to. This gives you hard data to analyze and adjust sales and purchasing strategies.
4. Embed inventory management best practices across your recycling chain
Inventory management is critical to all scrap recycling functions but particularly purchase, production, and sales functions.
Accurate inventory records will allow you to understand in detail what has been purchased, from whom, for how much and at which yard locations.
A comprehensive automated inventory system will also allow you to record the costs (both landed and production costs) to arrive at the cost of the finished goods which informs your pricing and margin strategy for sales.
It will provide you with robust processes to transfer materials across yards, re-grade classifications and put them into finished goods. Finally, a complete understanding of available finished goods for sale will allow you to accelerate turnover of inventory and streamline your sales and outbound shipment processes.
5. Carry out regular cycle counts
Regular and scheduled cycle counts will ensure that your inventory counts are accurate and up to date. It will also pinpoint any areas for improvement in your inventory management processes.
Cycle counting can be readily facilitated using digital mobile applications designed for this purpose.
Understanding all dimensions of your inventory, performing regular cycle counts, using automation and the most advanced analytics tools will give you full visibility and control of your inventory and all connected business processes. However, this can only be realized with a fully integrated inventory management system forming part of your enterprise management solution.
The AMCS Platform for Metal is an enterprise-grade cloud software platform designed to automate and optimize all the processes of a scrap recycling company including, dispatch purchases, compliance, scales, grading production, inventory management, sales, brokerage and outbound logistics.
Please come and visit us at Booth #901 at the 2022 ISRI conference in Vegas on the 21st-24th of March – book an appointment with us here.
To learn more about the AMCS Platform for Metal, please click here.
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Interview with Mark Valdes-Dapena on background to AMCS Platform for Metal Launch
Scrap is bought not sold so know your inventory and your costs Metal recycling will change fundamentally due to new feedstock mix, circular economy models, regulation, and sustainability New opportunities demand a new generation solution for automation, agility, and data insights In advance of the launch of the AMCS Platform for Metal Recycling at ISRI convention in Las Vegas on the 21st of March, we are taking time to interview our colleague Mark Valdes- Dapena who along with Mitch Lortie (Senior Product Manager) have been at the forefront of AMCS efforts to create this next generation solution for metal recycling. Mark is a scrap industry veteran of over 25 years and he and the team have worked closely with a group of key AMCS metal recycling clients to realise this new solution.