Good inventory management starts with a solid business understanding of inventory best practices and the relationship between this and day-to-day inventory operations. Step One is really knowing the types of inventory your business supplies.
For example, businesses with fast moving inventory will generally need to maintain a higher level of inventory than slower moving inventory. To identify this, businesses can use techniques like the ABC analysis (or Selective Inventory Control), which provides a mechanism for identifying items that will have a significant impact on overall inventory cost, while also providing a mechanism for identifying different categories of stock that will require different management and controls. Within best practice inventory management systems, it is possible to create custom product groups and categorise inventory in line with this ABC analysis.
Forecasting the demand
A business should also have strong forecasting capability so Inventory management personnel can reasonably and accurately predict their inventory requirements. The forecast capability should factor into historical sales trends, seasonality as well as other buyer trends and the current economic climate. It is a fine balance for a business to not hold excess inventory or insufficient inventory as this has a financial impact on the business.
Using inventory forecasting software like Lokad can allow the business to maintain a strong forecasting capability.
Automating inventory management
Spreadsheets and manual stock cards were once the standard go to tool for inventory management, whilst these were effective for maintaining records they required a high level of manual work to update and maintain.
Automation is now possible using inventory management systems and areas such as like maintaining accurate stock counts, low and high stock alerts and automating workflows around purchasing and sales are all elements of best practice inventory management which can be easily accessed.
Look for underlying problems
Being able to accurately understand and analyse problems with inventory is critical. One example is products, which are consistently being over or under ordered. Such issues can be identified using reports and allow businesses to track the workflow and identify weaknesses in the process. This allows for corrective action to be taken to fix the underlying problem.
Consider alternative inventory models
The standard inventory management model involves inventory being stored in a warehouse. The warehouse may be in the same or different location to the business. Alternative inventory models like drop shipping and vendor managed inventory models may be worthwhile considering.
Drop shipping is a model where the business does not keep goods in stock but instead transfers customer orders and shipping details to the wholesaler or manufacturer, who then ships the goods to the customer.
Vendor managed inventory is where the business (buyer) provides certain information to the supplier of the product who agrees to maintain a certain level of inventory at the business location. Consignment stock is a common model where the purchasing risk is shared between the business (buyer) and the supplier of the product. Under this model the supplier often agrees to repurchase stock, which does not sell.
How many of these best practices in inventory management do you have in place? If you need any assistance, why not book in an Inventory Health Check for your business?