7 Inventory Management Techniques

Inventory management involves monitoring where your items are at all times, and when you should order more. These methods can help improve the management of your inventory and are independent of any software.

  • Inventory management is the method that allows products to be ordered to be maintained, tracked, and then shipped.
  • Management of inventory helps prevent the loss of products and improves your ability to monitor products, improves the process of fulfilling orders, and helps you keep track of your inventory levels.
  • There are a variety of methods for managing inventory. The right one for you is determined by what you want to achieve with your company and the products you offer.
  • The article was written designed for those who manage inventory for businesses in warehouses or a physical store and require an efficient method of taking care of it.

Any company which sells physical items requires storage space for their products, whether it’s an office or your store. The management of inventory is essential to ensure that items are not lost as well as to speedily fulfill orders from customers and be aware of when you’re required to purchase more of a particular product. It directly affects profitability and no business can succeed in scaling without an effective inventory management procedure in place.

What is the purpose of inventory management?

Inventory management is the method that an organization uses to manage its inventory of physical items, and controls the inflow and outflows of goods beginning at the point of purchase until the point of sale. This involves tracking inventory according to location, deciding the best time to send purchase orders, and then completing sales promptly.

“Inventory management refers to the method to manage the physical stock or products you purchase to sell,” said Mohammed Ali who is the chief executive officer at Primaseller. “[Inventory management includes] purchasing storage, storing, and managing, as well as making sure that the product is in stock when the buyer is ready to purchase it.”

“Being in a position to know exactly where your pieces are located at any time is the most important thing,” added David Singletary who is the CEO and founder of DJS Digital. DJs Digital.

Management of inventory is essential to a range of businesses, such as retailers’ logistics and shipping operations manufacturing firms, as well as shipping and logistics operations. The precise nature of a company’s management of inventory is determined by the kind of inventory that it needs. For instance, a retail business is only required to record the locations and the quantities of the products they sell, whereas manufacturers must keep track of raw materials as well as finished goods.

“Say you’re selling jeans,” Ali said. “The first thing, to begin with, is determining the amount you’ll sell in a quarter. Make an order for those products.”

And, Ali said, there are three main questions to be answered.

  1. Where do you keep the item? Consider whether you require a warehouse or you can keep all your stock in a retail store. If you’re an online business that sells via an e-commerce platform, consider whether you require a separate place to store your products or if there is enough space in your existing office.
  2. What is the amount you plan to store at a time? The accuracy of your sales forecasts will allow you to better comprehend the number of products you’ll need to buy and keep at any given moment this is a method called control of inventory. Balance is the key to success and you should never keep too many inventory units in one go – referred to by the term “dead stock” however, you need to have sufficient products available to satisfy sales in a short time.
  3. How do you organize your inventory? Storage is more than just a place to store products that are waiting to be sold. It involves arranging bins and aisles, assuring that the storage areas are well-maintained and devoid of contaminants or moisture, and setting up an assurance of quality process to ensure that the items delivered by suppliers are solvable in good condition.

The most important thing to remember: Inventory management is the procedure of creating a well-organized method for tracking purchases, purchasing, and reordering of products.

7 inventory management techniques

If you’re establishing an inventory management system that is new or are looking to enhance your current one Here are seven management methods you might find useful.

1. FIFO vs. LIFO

First in first out (FIFO) and last in last out (LIFO) are accounting methods (also called “costing”) that are based on the way that your products are moved throughout your store.

FIFO is a great method for companies that sell their older inventory in the order it was first. If it was the first item to enter the storeroom, it must be the first one out of the building when someone places an order for that item. This helps keep inventory at its freshest which is vital for any perishable or expired goods.

LIFO is the exact opposite of FIFO which ensures that the latest received inventory is the first one out the the door. FIFO is the most common costing technique, but LIFO is a good option for companies that don’t transport perishable items since how the method of accounting reports income could have tax benefits.

2. Forecasting demand

The process of forecasting the demand (or sales forecasting) can help you determine the quantity of each product you must be able to have always to meet the demands of customers.

For established companies, Demand forecasting must be based on previous sales figures. Smaller companies may have to base their forecasts on estimates and industry data until they establish a sales history that is their own.

Demand forecasting is crucial for inventory management because it allows you to determine the minimum quantity of product you must have available and also set Reorder goals when you get to the required amount. It is important to review your forecast every quarter to alter your minimum quantity and reordering goals.

3. Minimum order quantity as compared to. economical order quantity

Minimum order amount (MOQ) along with economic order quantity (EOQ) is two distinct ways a company can employ in determine when to order items.

MOQ is focused on ensuring that you have the lowest amount possible for every type of product the seller will complete. The most expensive items usually have lower MOQs, however, items that are priced lower typically come with a higher MOQ. It is crucial to consider this when ordering products from suppliers. Consider the MOQ of a supplier for a particular item against your own sales forecasts.

This EOQ technique is popular for companies that must account for fluctuating costs such as raw materials production, as well as fluctuating demand. It was designed to help companies to reduce costs by buying the largest quantity of possible units, thereby reducing the requirement to order items each time.

4. ABC analysis

An ABC analysis will help you to understand which products are the most lucrative and which ones are the most expensive. The name of the analysis suggests that it categorizes products into three categories.

  • A. These items are the most valued and are the least to store for long term. They are a major contributor to the profitability of a company.
  • These represents mid-priced products that have a significant impact on the sales you achieve but are not as expensive as those that fall in the A category.
  • These are typically low-cost items that have a high turnover. Individual sales of these items aren’t as significant for a company as products that fall in the B or A categories, however, the high volume of sales for C products is crucial to the profitability of a business.

5. Stocks of safety stock

The stock of safety stocks is linked to sales projections and can influence your reorder volumes. This is crucial to your most popular or crucial products.

Safety stock is the stock you purchase beyond the amount you anticipate to need. While it’s not advisable to order too much but it’s beneficial to have a few extra units than you anticipate to require, especially if you think the item will remain an extremely popular item.

6. Dropshipping

Dropshipping refers to taking an order placed by a client and having your supplier send the items directly to the client. This eliminates the requirement to have a storage facility or to keep any stock available. It’s best to reserve it for special orders or products that you are unable to accommodate in your warehouse since it implies that your customer’s satisfaction is the responsibility of your supplier, not your own company.

7. Cross-docking

Cross-docking is a technique that focuses on efficiency. Delivery trucks will load at your location and then directly into the trucks that will ship your merchandise to your customers. This means you don’t have to transport new products to your storage facility and eliminates your inventory management process. In the end, items will go straight out when you receive they arrive. This is the best option for items that are planned to be shipped “just on time” delivery.

How can you enhance your inventory management processes

There are a few guidelines that you need to put in place to ensure proper and efficient control of the inventory you have.

1. Project accurate sales numbers.

The amount of stock you keep in stock is directly linked to the amount you anticipate to sell your inventory and the speed at which you do it.

For businesses that are just starting projections can be a hassle. You can glean any information you can get online to determine an estimated baseline, and then alter your expectations each 90 days based on actual information.

If you’re a well-established firm, look at your sales statistics and growth projections to figure out how much stock you must have in your inventory and when you’ll need to order every item. Particularly pay focus to your top-selling items.

2. Choose a warehouse supervisor.

A warehouse manager supervises the day-to-day activities of a warehouse. They also ensure that employees are consistently updating their software and complying with company policy. This includes scanning the products into as well as out of appropriate places as they enter for delivery while transporting products from one location within the warehouse, to another and when they leave for delivery to a client. The warehouse manager also makes sure that the quality of the products and ensures that regular inventory audits are carried out according to plan.

3. Establish regular inventory cycle counts.

When inventory is in storage, it’s essential to take regular inventory of what you have in your inventory. Without a consistent periodic inventory process, Ali said, businesses may lose between 2% and 10 percent of the products due to theft or loss each year. A regular audit of their inventory is essential to ensure that the number of goods that are lost is to a minimum.

4. Set up a system for tracking

It is possible to track items by hand, however, it is much more efficient to make use of the inventory control system. sophisticated software that will help you update your inventory in real time by scanning the items as well as locations within the storage facility.

For instance, Singletary said, when 10 items are delivered, you’ll be able to look them up at the entrance to the loading bay. The system then updates to indicate the 10 items that are waiting to be picked up. If a worker is moving these products from the loading dock towards Aisle 1, Bin 13 For instance then they scan the item into the system, and it immediately updates. The scans must be conducted every time an item is moved. The warehouse manager should refer to the software to know exactly where everything is within the warehouse, and check the accuracy of the information.

They are the basic elements of an effective inventory management system. Your process will be heavily influenced by the specific conditions of your company. For example, manufacturing companies often have raw materials and other goods to consider and therefore this aspect must be a major factor in the design of their processes for managing inventory.

Leave a Reply

Your email address will not be published. Required fields are marked *