Efficient Inventory Management

What is inventory management?

Inventory management is the way for efficiently tracking, systemizing, and directing the stock of goods of the company. It includes managing inventory efficiency, reducing costs, and ensuring on-time availability to meet the demands of customers, which results in increasing the profitability and satisfaction of the customers.

Why inventory management is required?

Efficient inventory management is the primary building block to running the company in the long term. When the company’s inventory is properly managed, then the supply chain will remain on track. In case inventory is not handled properly, that leads to different problems like faulty deliveries, running out of stock, and excessive stock.

Here are some brief explanations of the significance of inventory management:

Prevent spoiling

If the business deals in perishable goods or the goods that have the expiry date, usually food or makeup accessories, it is very probable that it will cause problems if it does not get sold in time. Robust inventory management aids in the prevention of needless spoilage.

Steer clear of deadstock

In addition to expired goods, deadstock also includes products that are no longer in demand due to a change in fashion or seasonal demand. You can steer clear of problems like these by improving your inventory management.

Reduce the expense of storage

The cost of storage is frequently changeable. This implies that you must make payments based on the size or weight of your goods. You may reduce the amount of money you spend on storage facilities by carefully examining your inventory report over time to see which goods sell the best and when.

Inappropriate stocks

Out-of-stocks and overstocks typically happen when a business places orders manually without monitoring the condition of its inventory. This leads to either too much or too little stock because it is undoubtedly a poor predictor for inventory forecasting.

The best inventory control strategies for your company

Every business tries to exclude most of the human errors. The inventory management strategies outlined below can help you increase your inventory (and cash flow as well), regardless of the inventory management solution you use!

Establish par levels

Establishing a ‘par level’ is important for the goods because that makes the process easy. Par level indicates the minimum quantity of a specific product that must be in stock. Whenever your inventory stocks sink beneath a pre-established value, then it is time to submit an order.

The worth of a product might vary depending on its type, how rapidly it sells, and how long it takes to sell.

It will take some time to build up a par value at first since you will need to investigate each product according to the season and other circumstances, but after you have done so, ordering will be much easier!

Don’t forget to periodically verify your par values to see whether your assumption still holds true or if it needs some tweaking.

 First-in first-out (FIFO)

According to this approach, the first stock received goes out first, as the name implies. To avoid having rotten or expired goods, this is particularly crucial for perishable goods. Using FIFO for non-perishable goods is also a smart idea. The reason is that boxes will eventually wear out if they are stored for an extended period of time. Having an outdated item that you are unable to sell is definitely not what you want.

All you need is a well-organized warehouse to implement a proper FIFO. This usually entails shifting the current items to the front and inserting the new product from the rear.

Create and maintain connections

Creating a solid and trustworthy network is crucial to a good inventory. Whether you need to swiftly refill a fast-selling item, return a slow-selling item, troubleshoot production concerns, or temporarily increase storage space, this inventory management strategy is quite helpful. Having a solid connection with your suppliers is crucial. They will be more helpful to you and assist you in solving problems more rapidly if you do this.

Please be aware that being pleasant is not enough to maintain a healthy connection. It is about having open, proactive, and transparent discussions.

Frequent auditing

It’s a good idea to confirm that the screen data corresponds to the real facts, even if you have a tool or program to manage your inventory.

Learn how to quickly assess each of your items to see if they are in a state that makes them suitable for sale.

Using the ABC method

Some of your items require more care than others out of all of them. By distinguishing between goods that need a lot of attention and those that don’t, an ABC analysis helps you prioritize your inventory management. Listing your goods in one of the following three categories can help you achieve this:

High-value goods that don’t sell very often (Category A)

Products of moderate value and moderate sales frequency (Category B)

High sales frequency for a low-value product (Category C)

Your category A items need constant monitoring since they have a significant financial impact, yet sales are erratic. Because they are consistently sold and have a lower financial effect, the things you put in Category C need less care. In between are the things you list in Category B.

Precise prediction

Accurate and trustworthy forecasting is one of the most crucial inventory management strategies. You will be ready for everything that may occur, even if your forecast is not entirely correct. Examine the following to make precise predictions:

• Current trends in the market
• Sales during the current period last year
• The growth rate for the current year
• Your products’ seasonality
• The economy as a whole

Questions to Understand your ability

Q1.) Why is inventory management important for a business?

A) To increase the number of employees

B) To efficiently track stock, reduce costs, and ensure on-time availability

C) To keep stock in storage for as long as possible

D) To focus only on increasing sales

Q2.) What does ‘par level’ refer to in inventory management?

A) The amount of inventory required to meet customer demand

B) The maximum storage capacity

C) The minimum quantity of a product that must be in stock

D) The cost of each product

Q3.) What is the First-in, First-out (FIFO) method used for?

A) To keep track of product expiry dates by selling the oldest stock first

B) To manage the order of employee shifts

C) To sort inventory based on product type

D) To store products in the order of their sale price

Q4.) What does the ABC method of inventory management help businesses do?

A) Prioritize inventory items based on their sales frequency and value

B) Track customer complaints

C) Monitor employee performance

D) Increase product pricing

Q5.) What is one of the most important factors for accurate inventory forecasting?

A) Random guesses about future sales

B) Trends in the market, seasonality, and past sales data

C) Ignoring seasonal changes

D) Relying on a single product category

Conclusion

In conclusion, effective inventory management is essential for a business to run smoothly. By ensuring products are available on time, preventing spoilage and deadstock, and reducing storage costs, businesses can improve profitability and customer satisfaction. Strategies like establishing par levels, using FIFO, and accurate forecasting can help optimize inventory management, leading to better decision-making, cost control, and efficient operations. Ultimately, it strengthens the overall supply chain and business growth.