Transform Your Business with these 11 Inventory Management Tips

Inventory management lets you realize how much inventory you have in your warehouse and how much more you need. It covers the whole cost of purchasing the products and raw materials as well as how you store them till they are either sold or used. Inventory management also covers other activities, such as auditing inventory levels, setting par levels and purchasing or rearranging material.

Basics of Inventory

An effective inventory management system can serve as a strong base for a well-managed company. Keeping an orderly warehouse and having an adequate supply of inventory to fulfill consumer demand are essential for business success. Here are some pointers to help you review the fundamentals of inventory.

1. Make arrangements for unforeseen events.

Global supply chains are prone to instability, and customers are fickle. With contingency planning, you can adapt when new problems arise. Here are a few to be aware of:

• A sharp rise in consumer demand results in a stock scarcity.
• Customers are requesting a product that you are unable to supply because of cash flow problems.
• Suddenly, your facility is too small.
• You purchase too much merchandise, and it doesn't sell quickly enough.

2. Set priorities for your stock.

Inventory that moves more slowly can be put farther away from the loading dock, and vice versa. Slot inventory in ways that make it easier to transfer. Make more frequent orders for inventory that moves more quickly. Understanding the features of your inventory, such as its cost, lead time, minimum and maximum order numbers, and size, can help you store and organize it more effectively. Next, prioritize your inventory and classify it accordingly.

3. Recognize the 80/20 rule of inventory

What is the 80/20 Inventory rule? Most companies discover that 80% of their profits are generated by 20% of their stock. Making sure the more profitable 20% of your inventory reaches its full potential is the better course of action than getting rid of the less profitable 80% of it. To put it another way, you ought to have

4. Examine your stock.

Counting your inventory is the first step in controlling it, and knowing your inventory levels is the first step in effective management. How does one go about doing an inventory audit, and what are the advantages? Comparing your software's displayed inventory with your real inventory on hand is the first step in conducting an inventory audit. You can either employ a third party to assist you or do the audit yourself. A comprehensive audit examines many performance indicators, such as your inventory turnover ratio and your inventory expenses in relation to historical patterns, in addition to a physical count. An inventory audit helps monitor shrinkage and identify areas for improvement, such as inefficiencies in receiving.

5. Recognize the minimum order quantity (EOQ).

The appropriate quantity for your business to buy in order to meet consumer demand while avoiding having excess inventory on hand is known as the order of magnitude (EOQ). When dealing with an item that sells quickly, you should have a lot more of it and fewer of the valuable, slower-moving things. But velocity—the rate at which products sell—isn't the sole one. Depending on how much it costs to make, ship, store, and handle the item, the EOQ varies. If you can tune EOQ, you'll be able to purchase less inventory overall, maximizing profit while minimizing handling and storage expenses.

6. Understand when to apply ABC analysis

Warehouse slotting and inventory cost management are two applications for ABC analysis. Your inventory can be categorized into three main areas. When it comes to cost management, category A is the highest-earning 25% of your inventory, category C is the lowest-earning 25%, and category B is everything in between. To apply this idea to inventory management, swap out "profit" with "velocity." It's possible that your fastest-selling things aren't the most lucrative. You can make changes to your ordering and stocking strategy based on which products are selling faster in order to save money with things like bulk-buying discounts and more effective warehouse management.

7. Store perishable items using the first-out, first-expiration method (FEFO).

Companies who deal with perishable commodities, like food, on a regular basis ought to utilize FEFO to its full potential. FEFO stands for first-expiring inventory. When an item is sold, the inventory that expires first in your warehouse—typically, but not always, the "first in"—should be the first things out the door. Products with a short shelf life are more likely to reach the consumer before going bad thanks to FEFO.

First-in, first-out (FIFO) and non-perishable inventory can both benefit from the application of FEFO techniques. An item's chances of becoming damaged or going out of style increase with the amount of time it is in your inventory. Getting your older inventory out the door first means that it'll still be desirable and relevant.

8. Apply last-in, first-out (LIFO) techniques with caution.

Warehouses can protect themselves from price increases by using LIFO. The cost of some goods, like automobiles, is always rising. This implies that the inventory you have lately purchased is always more costly than the stuff you have previously owned.

9. Commence your analytics with gathering precise data.

Inventory managers integrate data from multiple sources to optimize warehouse storage, expenses, and processing speeds. Lot numbers, SKUs, picking levels, supplier information, and more are a few examples. By keeping track of this data, you may build an invaluable data repository that serves as the basis for your analytics practice. Inventory management software can assist you in accurately creating, tracking, and storing this data. It can also integrate with RFID devices, such as UPC scanners, to reduce the need for manual data entry.

10. Make use of your facts to begin predicting.

When you have sufficient data, you may go on to the next phase of your analytics process, which is forecasting. Inventory management software can offer statistics and dashboards that estimate future demand by analyzing historical data and sales velocity for certain items. The greatest business intelligence solutions are integrated into your platforms for inventory management and expand with your company as it expands.

11. Think about spending money on inventory management software.

Most likely, spreadsheets and clipboards are no longer necessary in your company. It's definitely time to start automating if you discover that you are spending more time maintaining and monitoring your inventory than you are overseeing your staff. The correct inventory management software can keep track of stock levels, automatically gather data from intakes, send out price changes alerts, and much more. The platforms enable you to resume concentrating on your primary areas of expertise.