The Latest Inventory Management Tips That You Should Use Today
In 2022, US and Canadian retailers lost out on $349 billion in sales due to inventory distortion, i.e., over- and understocking.
While much of this may be a result of shortages and delivery delays, there are still things you can do to ensure your business doesn’t suffer from inventory issues.
Effective inventory management is the first step to ensuring you don’t lose out. Continue reading for top inventory management tips to ensure you have what your customers require in stock when they need it.
What is Inventory Management?
Effective inventory management is a vital component of effective warehouse logistics. It creates a clear picture of how much stock you have in your warehouse and where any shortfalls lie.
It involves aspects like purchasing raw materials and goods and how you manage them until the moment they’re sold.
Some processes involved in inventory management best practices include:
- Auditing inventory levels
- Setting par levels
- Ordering items
- Reordering depleted inventory
How you manage your inventory depends on several factors unique to your business. It’s a dynamic process involving trial and error, and it always gets better with experience.
If you’re starting to pay closer attention to your inventory management, there are a few ways to get off to a solid start.
Avoid a One-Size-Fits-All Approach
To operate at optimum efficiency, you must find the balance between keeping enough inventory on hand to make a profit without tying up all your cash in storage space and goods.
Many volatile geopolitical factors can impact your supply chain and inventory levels. Different types of inventories, e.g., perishable vs. non-perishable goods, also require different management tactics.
The best way to find an ideal balance across your company is by keeping precise records and trying as many different approaches as you dare. Inventory management software is the most reliable way to generate reports and track metrics, so you can find solutions for your business.
Adopt Inventory Audits
You can’t control your inventory unless you count it first. Yet, auditing your inventory goes beyond a physical count.
The first step in auditing your inventory involves comparing what your software reports say vs physical stock levels.
Secondly, you should analyze performance metrics such as those calculated by your inventory turnover ratio formula. Finally, compare your inventory costs with historic trends.
Auditing your inventory this way helps you find areas for improvement and keep tabs on shrinkage.
Understanding EOQ (Economic Order Quantity)
EOQ refers to the quantities you should purchase so that you have enough products to meet customer demands without storing inventory you don’t need.
It is best to keep larger quantities of fast-selling items in hand. You only need small amounts of more valuable but slower-moving stock.
Beyond sales velocity, EOQ also depends on how much it costs you to produce, store, handle, and ship items.
Once you’ve mastered EOQ calibrations, you can buy less inventory overall to keep your handling and storage costs down while still operating at a profit.
MOQ refers to Minimum Order Quantity. This is the smallest number of units a supplier will sell to you.
If your MOQ exceeds your EOQ, you might need to consider a different product or a new supplier. Creating positive relationships with your suppliers and vendors can assist you with optimizing this balance.
Set Par Levels
It’s important to know at what point you need to order new inventory items. This is your par level.
A par-focused approach means you’ll only order as much stock as you need to get above par instead of reordering your EOQ. Make sure the amount you need is always above the MOQ for that stock item.
Calculating par levels involves calculating the average units sold in a defined period while taking spikes in demand into consideration.
Finally, you must factor in safety stock to make up for unexpected surges in demand. This is usually 25% of the inventory level for that item.
The following formula sums it up:
Par level = (Average inventory used during a time frame plus safety stock) divided by the number of deliveries in that period
Once you’ve set par levels, you don’t need to make any more complex decisions. All you need to do is keep tabs on your inventory levels.
Inventory Management Tips for Better Efficiency
There are three primary inventory management techniques you can use to enhance efficiency. They are:
- Pull Strategy based on customer demand
- Push Strategy based on forecasted demands
- Just-in-Time Strategy, where you create products as they’re ordered
Depending on your circumstances and available capital, one of the above options is bound to work for you.
Maximize ABC analysis
ABC analysis suits both warehouse slotting and inventory cost management. This is how it works:
You can divide your inventory into three groups as follows:
- Category A is the top 25% of inventory, profit-wise
- Category C is the least profitable 25%
- Category B is everything in between
When using ABC analysis for inventory management, you’ll categorize these items according to how fast they sell instead of how much profit they generate.
Once you’ve figured out which items sell faster, you can easily adjust your ordering methods to save using bulk-buying discounts.
Use the Available Technology
One of the best inventory management tips is to search for software and hardware, like barcode scanners, to help you keep accurate records of inventory levels. Currently, you can install comprehensive, customized systems to suit any industry.
Technology helps eliminate human error and decrease shrinkage. It also gives you access to a host of useful reports.
A sophisticated tech solution for your business will pay for itself in no time by helping you ensure your inventory management runs smoothly and accurately.
Browse our blog for more insights into how technology can help you maintain and grow your business.
