Improved inventory management can cut purchasing costs, storage fees and storage space requirements significantly while simultaneously guaranteeing products are available to end customers without backorders and missed sales opportunities.
Common types of inventory include raw materials, work-in-progress items, finished goods and decoupling inventory – each type requiring different inventory management approaches.
Inventory Forecasting
Inventory forecasting is a complex process that relies on sales data to predict product demand over time. Accurate forecasting helps businesses meet customer orders while simultaneously managing inventory investments efficiently.
Forecasting systems that effectively account for seasonality, reorder points and planned marketing campaigns among other factors are necessary in order to provide accurate predictions. A good system often employs both qualitative and quantitative analyses on historic sales data to detect patterns and trends that will help guide its predictions.
Common inventory forecasting mistakes include over-ordering (waste of product), under-ordering (resulting in stockouts), and ordering too late. To address these problems, companies should familiarize themselves with basic principles of forecasting such as setting reorder points based on historical sales data and trend analysis; additionally they should become knowledgeable with advanced techniques like graphic forecasting and model building using historic sales data.
Lead time of new products should also be factored into inventory planning. This refers to how long it takes from when you place an order with your supplier until that product arrives at your inventory. You should also take into account any possible sources of delay such as weather or holidays when shipping delays may arise, while calculating how much of your inventory consists of “work in progress” raw materials that haven’t yet been fully transformed into finished goods.
Inventory Replenishment
Inventory replenishment refers to the practice of making sure a company always has enough stock on hand to fulfill orders. It involves working closely with salespeople, inventory management personnel and supplier partners in order to ensure that products meet demand while simultaneously cutting costs.
Restocking inventory successfully relies on accurate knowledge about existing stock levels. Cycle counts and automated inventory management systems help verify existing data is accurate to enable informed decisions when ordering more product. Having visibility of vendor lead times by SKU helps companies calculate accurate reorder points to reduce product shortages caused by inaccurate forecasting.
Restocking and stock level fluctuations can be managed using various approaches, including FIFO (first-in, first-out) and LIFO (last-in, first-out) cost-determining models. A 10% safety reserve protects against stockouts but increases inventory holding costs as it ties up capital which could otherwise be invested back into your business.
The top-off method of replenishment, which is popular among retailers and distributors with fast-moving products, involves periodically reviewing inventory levels to assess whether more inventory needs to be ordered. This strategy reduces overall storage costs but may delay order fulfillment for customer orders. Other popular replenishment approaches include restocking on demand and spreading inventory across multiple fulfillment centers to lower shipping and last mile delivery expenses.
Inventory Tracking
Tracking inventory accurately is a core element of supply chain management, ensuring your company has enough warehouse stock to fulfill customer orders without tieing up too much capital. Tracking is also key for BOPIS fulfillment strategies and other multichannel strategies.
Effective inventory tracking begins by clearly defining the types of products within your supply chain. This may include raw materials and components, work-in-progress items like screws and bolts, and finished goods ready for shipping directly to customers. They may pass through different locations such as manufacturer warehouses, third party storage facilities or postal facilities before arriving at shoppers’ doors.
Effective inventory management requires understanding each product’s average inventory turnover rate and fluctuations throughout the year, providing valuable insight to strike a balance between keeping enough stock on hand to meet demand without running out and running up sales prices and damaging brand recognition.
Many manufacturers rely on inventory control techniques such as Just-in-time manufacturing and ABC analysis to optimize their production and distribution processes, but manual tracking methods often create human bias and inconsistent results. Luckily, affordable traceability software specifically tailored for small and midsize enterprises (SMEs) can overcome this difficulty and deliver better inventory management that helps avoid expensive mistakes while creating an exceptional customer experience.
Inventory Control
Maintaining appropriate inventory levels is vital to companies in boosting cash flow, cutting holding costs and increasing sales. A company can implement various techniques to optimize its inventory management such as forecasting and data analytics; optimizing purchasing procedures; monitoring customer demand to identify items to purchase; and adjusting safety stock/reorder points.
Inventory control and optimization require managing suppliers. A company can work with their vendors to negotiate minimum order quantities, offer flexible shipping dates and help restock rapidly when sales surge for certain products.
Bundling items and implementing rolling inventory can also help businesses better control inventory, as this approach allows businesses to sell off newer products first while keeping older stock stored away in warehouses. A first-in, first-out (FIFO) technique promotes selling older goods quickly to prevent wasteful spending on wasteful inventory.
Additionally, businesses can utilize cycle counts to count inventory regularly. These counts can be broken down by supplier, item category or stock location for maximum efficiency in identifying trends and pinpointing errors related to ordering, storage or theft losses. Some organizations use an Economic Order Quantity (EOQ) calculator in order to calculate an optimal order quantity while taking into account ordering and carrying costs; using such an instrument can enable informed decisions about purchasing more of what’s necessary.