Why should you care about managing your inventory efficiently?
Inventory management may just be one component of your supply chain, but the effects of it, positive or negative, impact your business as a whole.
As discussed in Measuring and Managing Inventory: Everything You Need to Know, inventory management is the process of overseeing and controlling the flow of goods, materials, and products within a business. Knowing the importance of inventory management is vital for any company’s success.
Inventory management processes will vary at different companies and across industries. If you haven’t already, you will need to develop a strategy that’s catered to your business. According to Adobe Business, having an understanding of the following techniques will give you a good starting point.
Inventory Management Techniques
Just-in-time (JIT): Your company gets the exact amount of inventory at the time it’s needed. The purpose of this technique is to reduce the amount of excess stock on hand to save money and space.
Economic order quantity (EOQ): You don’t have too much or too little inventory. According to Adobe Business: “EOQ calculates the number of items a business needs to add to its inventory with each order to reduce the total costs of inventory while assuming steady customer demand. This technique helps balance the cost of ordering inventory and the cost of storing inventory.”
Safety stock: With safety stock, you have more inventory than needed. This technique is convenient in cases where inventory is not delivered on time by suppliers – with this technique, this wouldn’t be a major issue since you already have some on hand.
Forecasting: With this technique, your company stocks inventory right before it is needed. With this proactive approach, “the most basic data to consider are past sales trends and their correlation with future expectations — this includes factoring in seasonal fluctuations on demand.”
Minimum stock level: This level refers to the lowest quantity of each item you need to have on hand. When inventory starts approaching the minimum level, you need to reorder.
First in, first out (FIFO): Simply put, when a new order is placed you use the older stock first. This technique is used when items have expiration dates and can minimize the risk of dead stock.
Last in, first out (LIFO): Opposite of FIFO, with LIFO newer items are sold first resulting in a tax advantage. As noted by Adobe Business: “This approach generates a higher cost of goods sold and a lower balance of remaining inventory, which results in a lower net income that creates a smaller tax liability.” This technique is usually only used if there if there is not an expiration date.
Regardless of which techniques your company uses, there are an array of benefits that come with efficient inventory management. But first, let’s look at some common problems managers may face related to inventory management.
Inventory Management Problems Managers May Face
Extensive highlights four problems managers may run into in, What is Inventory Management and How is it Used?
Deciding who takes control
“Deciding who takes control and who’s responsible for making inventory decisions needs to happen before anything else can fall into place or be put into motion. Will decisions be made by an individual, or will things be decided on by a team of people? Outlining the structure and authority for who controls inventory can boost accountability and prevent confusion later on.”
Managing spaces and people
“If the staff or the space itself are not properly managed, it can present a lot of obstacles to your success. Since the warehouse team is directly handling your inventory, they should be given clarity around all operating procedures at any given time, so everyone is working from the same page.”
Accurate demand forecasting
“Making more sales than you have products available is not only damaging to your bottom line, but it hurts the customer experience, as well. Once you’ve oversold, it’s difficult to reconcile those oversold items and maintain customer satisfaction. If this happens, you’ll need to quickly order more inventory to restock (which can be costly) and alert your customers to any delays.”
Running out of stock
“Although stockouts aren’t as harmful as overselling, they still have similar consequences. If a particular product is out of stock for too long, your customers might purchase from a competitor (which then makes it possible they’ll never return to your brand). Running out of stock is certainly less than ideal, but companies should start restocking right away if/when it does occur.”
So, you’ve identified what techniques will be best for your company, you have a solid inventory management system/process in place, and reduced the likelihood of problems arising with inventory management. Here are some of the benefits, according to Adobe Business, you’ll soon be reaping.
How Does Effective Inventory Management Impact the Supply Chain?
Cost and time savings: If you consistently have accurate numbers of your stock, you don’t need to spend time and money on recounts, or unnecessary reorders.
Better organization: “How your inventory is physically organized impacts the time it takes for employees to find and ship items, which affects how quickly you can fulfill orders and grow customer satisfaction. Inventory management lets you know which items are most popular, which are frequently combined in the same orders, and which take the longest to transit in and out of storage. You can use this data to determine how to arrange inventory efficiently.”
Customer satisfaction: With good inventory management, you can better serve your customers since you have what they’re looking for (and exact quantities) and you can get it to them on time. The opposite, out-of-stock items, wrong quantities, etc., will lead to unsatisfied customers.
As mentioned, good inventory management is crucial for any company that wants to succeed as inventory management impacts the whole supply chain. As Adobe Business puts it, “Poor or nonexistent inventory management puts a business at risk of undercutting all of the time and money invested in its merchandise.”
How You Can Streamline Inventory Management
Regardless of whether you’re a manager or another employee, managing your inventory efficiently can seem incredibly daunting since there are a multitude of factors to consider.
With our inventory performance platform at The Owl Solutions, you can streamline your company’s inventory management process by utilizing features like industry benchmarking, curated metrics for inventory performance, as well as goal setting and comparisons.
The Owl’s inventory performance platform was created by supply chain professionals, for supply chain professionals.
Check out our platform here.