12 Successful Strategies For Managing Inventory Efficiently
🕒 July 26, 2022 by Reham Omar - 7 min read
- What is Inventory Management?
- Why is Inventory Management Important?
- Analyzing The Inventory in Terms of Expiry Dates
- Negative Effect of Unorganized Inventory Management
- Strategies To Drive Successful Inventory Management
- Supply and Demand
- Manage Vendor and Supplier Relationships
- Just-in-Time (JIT)
- First-In, First-Out (FIFO)
- Employ a Safety Stock Inventory
- Use Data and Analytics
- Understand the 80/20 Inventory Rule
- Know When to Use ABC Analysis
- Economic Order Quantity Model
- Batch Tracking
- Audit Your Inventory
- Consider Investing in Software to Manage Inventory
- To Summarise
Inventory is a crucial component of every business; effectively managing it can help cut expenses while boosting revenue. Inventory management is essential to organizational success, yet many small firms lack effective management techniques for inventories. Some companies have inadequate inventory, preventing them from supplying enough items to meet client demand. This lack of supply frequently pushes clients away, sometimes permanently, and occasionally to another firm. Effective management plans help to optimize inventory and increase earnings across all sales channels.
What is Inventory Management?
The practice followed by businesses to organise and regulate the movement of its items or commodities is known as inventory management. Most companies resort to inventory management in some capacity in their everyday operations.
Evaluating unsold goods is also a part of inventory management, helping prevent thefts and locate missing items. In managing the inventory, various techniques, including physical and accounting, are adopted.
Why is Inventory Management Important?
An effective inventory management system is essential, regardless of your business. It may assist you in keeping track of all your goods and determining the actual costs. In addition, effective inventory management also helps businesses to manage rapid demand variations without compromising customer satisfaction or product quality.
Analyzing The Inventory in Terms of Expiry Dates
As inventory comes with limited shelf life, the business needs to monitor future inventory getting close to expiring. Expiring inventory can substantially reduce a company’s profitability.
- Lot numbers and expiry dates are especially helpful for planning considerations
- Expiry dates of daily use products and medicines help you assess how long the product will maintain its strength, quality, and purity when stored according to the label instructions.
- If a product is approaching its expiry date, rearrange your inventory for minimal losses.
Negative Effect of Unorganized Inventory Management
Unorganised inventory management refers to a lack of proper infrastructure and procedures for maintaining ideal stock levels.
- The longer you keep inventory, the more expensive it is. Without efficient inventory management and analytics, a company may overstock a product, reducing cash flow and increasing the risk of storing dead material that has outlived its usefulness.
- A company that uses static inventory tracking is less likely to recognize whether a product sold better than anticipated. Companies may choose when to restock or boost stock levels of popular goods using real-time data and statistics.
- According to research, poor inventory management might result in customers receiving orders later than expected. Furthermore, unorganized inventory often results in businesses not verifying the list and discovering that the right parts are unavailable for a product. This confusion can leave your customers dissatisfied.
Strategies To Drive Successful Inventory Management
An efficient approach to managing the inventory can benefit firms, making it an important business point. These are the top 12 inventory management strategies.
Supply and Demand
Keeping the appropriate amounts of stock on hand is crucial. You can decide how much to carry by examining supply and demand. A significant factor is client happiness. Customers who frequently get ‘out of stock’ notices are more inclined to switch to a rival. Keeping track of what is currently in stock and what needs replenishing is essential.
Manage Vendor and Supplier Relationships
No company can expect to be successful without its suppliers. Hence, it is crucial to maintain positive ties with them. There might be situations where you will need to contact your vendors for urgent requirements; their quick and favourable replies can prevent your company from significant challenges.
JIT inventory management synchronizes supplier orders with relevant manufacturing schedules. You may improve efficiency and reduce waste by ordering what you need, or JIT. JIT systems help to retain as minimal inventory as possible; therefore, you must not keep extra raw materials on hand ‘just in case’. Instead, place a new order for the same number of items to replace the ones you previously sold.
First-In, First-Out (FIFO)
A warehousing technique, the first-in, first-out (FIFO) lives up to its name. The first products to enter your warehouse also exit using this inventory control system. A FIFO system is comparable to the idea of ‘first come, first served,’ except that, in this case, the phrase refers to the lifespan of a product.
Employ a Safety Stock Inventory
Running out of stock is a problem you can avoid with safety stock. With enough safety stock, you no longer have to rely on the ability of the supplier to deliver on time or turn away clients because of low stock levels. The safety stock will help you tide over difficult situations until the next batch of requested products arrives.
Use Data and Analytics
Due to technological advancements, it is possible to have up-to-date product information and sales estimates at your fingertips. With such crucial knowledge at lightning speed, you can accurately estimate consumer demand for products. Hence, data and analysis go a long way in helping companies adjust inventory levels in response to the current market.
Understand the 80/20 Inventory Rule
Enterprises often discover that 20% of the stock generates 80% of total revenues. Hence, it is vital that the more profitable section of the inventory reaches its maximum potential. Focusing your energy on getting rid of the less valuable, significant chunk is not a great idea. Additionally, in order to prevent damage, these items should be managed cautiously, making it easier for the store facility to locate them.
Know When to Use ABC Analysis
Both inventory management and warehouse slotting can benefit from ABC analysis. Your inventory will be divided into three groups in general. Regarding revenue, category A holds the high 25% of your stock, category C the lowest 25%, and category B the remaining inventory. This approach may be applied to inventory management by substituting ‘velocity’ for ‘profit’. The products that sell the quickest may or may not be the most lucrative. You may change your purchasing and restocking strategy to find savings through bulk-buying deals and more efficient warehouse management techniques by determining which goods are selling faster.
Economic Order Quantity Model
According to this model, which assumes that customer consumption is constant, inventories will eventually run out at a set pace and reach zero. Timing reorders according to the management plan will prevent goods shortages or excesses.
This tactic, often referred to as lot tracking, involves following the progress of products as they move through the supply chain. This monitoring requires using batch numbers for optimal efficiency. It displays the origin, destination, the quantity sent, and if and when they will expire. You can use this information to manage your inventory better and improve your distribution networks.
Audit Your Inventory
Examining your inventory physically rather than solely relying on software results is the first step in inventory auditing. The audit can be done either by your company on its own or with assistance from a third party. A complete audit examines additional performance indicators, such as your inventory turnover ratio and your inventory expenses compared to historical patterns.
Consider Investing in Software to Manage Inventory
The proper inventory management software may perform several tasks, including automatically collecting information from intakes, monitoring stock levels, and alerting users to pricing changes. Such automated tasks provide you respite from tedious spreadsheets, allowing you to focus on core functions of the business.
Each organization has its unique method for developing the best inventory management plan. There are many things to consider when building an inventory management strategy. Still, once implemented, you can rely on the inventory management system to streamline and automate your operations. After all, the end goal for any business is to keep consumers happy – a task that efficient inventory management can help achieve.