Inventory management is incredibly difficult. The demand for goods will change every day. Innovations, trends, and demographic changes of consumers may all speed up or slow down sales of various goods. Such shifts may react to under buying, overbuying, or buying the false goods — all of which trigger the company avoidable challenges.
Inventory is the company’s greatest asset and you have to guard this asset in the best way possible, to save money and make money.
As successfully carried out, companies minimize excess inventory costs while optimizing profits.
Nearly every organization needs to have an inventory management system until it gets under control. If not, there would be no way for you to maintain suppliers, production, or sales.
Below are some of the inventory management techniques used to handle stock inventory effectively to maximize profitability and cash flow management.
Ten Techniques of effective inventory management
- Tracking system
Inventory tracking is one of the key methods of inventory management in which users can group and track inventories with specific qualities. SKUs, barcode details, suppliers, place of origin, and lot numbers should be included in this data. It lets companies track the deadline, faulty items, the quantity of orders, and so on.
- Batch tracking
Batch tracking is a standard procedure, and are adopted in inventory management processes by businesses in many industries. This approach helps to monitor the expiry of the inventory or the recovery of faulty goods.
- Prioritizing the inventory
Setting your inventory in priorities can help you understand what goods you need more and more often to order, which are essential for your company but can cost more and move slower.
There are some others to be considered here:
a) Just-in-time (JIT) Inventory management is a perfect strategy to handle supplier orders. The JIT is an ideal way to cut stock costs and allows businesses to get stock ‘as-needed’ rather than buying too much and risking dead stock.
b) ABC analysis
ABC analysis will help you find the most precious stock.
Use this technique to prioritize stock by distinguishing items that need significant attention from ABC analyses.
An inventory is the High-value products – These are slow-selling goods with the highest profit margins,
B inventory is the Moderate value products – Inventory that frequently sells, but not as big as A. Between the most desirable and the least.
C inventory is the Low-value products – Inventory which sells the fastest. The remaining inventory not selling as much as A or B produces the least income and generally has the least value.
c) FIFO and LIFO approach
FIFO (First In, First Out) and LIFO (Last-in, First-Out) are ways of estimating inventory costs.
FIFO assumes that the older stock is first sold. It’s an ideal way to keep the stock fresh.
LIFO means that the newer stock will normally first be sold. It helps to stop a poor inventory.
FIFO can be a stronger end-to-stock value measure as the old items are used, while the new items represent current market prices.
- Economic order quantity (EOQ)
Its main goal is to help an organization keep its inventory consistent and reduce costs. This is an analysis that helps to decide the best inventory to be ordered every time. To better balance the minimum purchasing and carrying costs while managing to meet demand.
Companies are entitled to make efficient use of the EOQ equation to define the most economic number of items to be ordered in accordance with the company operating expense.
- Accurate forecasting
Accurate forecasting could become a popular retailers’ inventory management technique.
The demand forecasts are based on current and former consumer value, all about determining potential forecasts of a company’s goods and services.
- Regular audit of the inventory
Physical auditing – Just once a year is physical auditing done, but it is repetitive work. It is a perfect way to locate inventory irregularities and prevent short-term losses.
Cycle counting – It includes measuring a small amount of inventory on a certain day without having a whole inventory. This approach allows you to review your stock management system for correct inventory levels regularly.
- Lean manufacturing approach
Lean manufacturing concepts offer an immense opportunity to improve production efficiencies dramatically and to create better, more cost-effective goods. The best practices in lean inventory management are aimed at reducing inventory levels to zero.
- Six Sigma
Six Sigma projects help to increase the overall process performance. Improve schedules for the development of processes or the timely delivery of goods.
- Inventory reorders
Inventory reorder is the minimum unit amount to be reordered by a company prior to re-ordering further products in the inventory available.
A reorder point formula tells you about when to order additional stocks – you can keep the lowest amount of stock until you need more.
This reduces the operating costs by not binding the capital to excess inventory.
- Safety stock inventory
Safety inventory management consists of additional inventory over and above anticipated demand.
This strategy is used to avoid inventories usually attributable to improper forecasts or unexpected consumer demand shifts.
- Find your perfect inventory management
- The inventory management program has an important role to play, you can retrieve information with its tracking information such as whether you are good at inventory efficiency whether or not it is.
- It can track past data which can also be beneficial for your business. You can analyze the sales pattern.
- You can make more successful choices for your company with the aid of the inventory management program. These best practices will help you achieve total inventory management, optimize profit and benefit.
Inventory management’s ultimate aim is to decrease stocks, increase income, and optimize business development.
Inventory management is much wider than control: the supplier chain, production, performance, sales, and reporting are taken into account.