Manufacturers are just one example of businesses that need to manage inventory. Continue reading to learn more about inventory management best practices.
The basics of inventory management
Simply put, inventory management is the ability to have the right inventory at the right price and in the right quantities. An effective inventory management system monitors inventory needs from the point of the purchase order to the sale of goods in the supply chain. An effective inventory management system includes many aspects such as order management, storage, and use of the company’s raw materials and finished products.
Best practices in inventory management identify and ensure that stock levels are forecasted correctly to meet customer demand and issue warnings if stock levels become too low. Poor inventory management can lead to stock that isn’t sold or dead stock which will reduce cash flow.
Five key steps in inventory management
Purchasing – Purchase raw materials to make final products or products to sell.
Production- Making the final product out of its components.
Stock Holding – Storage for final products and raw materials before they are sold.
Sales- Making sure your products reach customers and collecting payment
Reporting – Creates reports on profitability and cash flow for small businesses.
Why is inventory management important?
Small businesses can use inventory management to ensure that they have enough stock. This reduces the risk of stockouts and inaccurate records. It also restricts cash flow.
A company can benefit from inventory management in many ways. This ensures that customer needs are met promptly, which leads to improved customer service and satisfaction. It increases the company’s profit by allowing you to invest in the right amount of stock while maintaining cash flow.
The Benefits of Inventory Management
Saving Money- Knowing your inventory needs will help you make the best stock investments at the right time. Best practices in inventory management save money and maintain cash flow for small businesses. It can also be used to manage warehouses and in-store operations.
Increases Cash Flow – Inventory Management allows you to spend money when the stock is sold.
Customer Satisfaction- Inventory Management enhances customer service.
Inventory management comes with its challenges. While inventory management can give accurate stock levels, the problem comes up when there is too much stock.
Other challenges include not having enough safety stock to meet orders. The biggest problem is not being able to forecast the demand for inventory. These are some other issues that inventory management faces.
Stock Levels – It is important to have accurate stock levels to know when you need to replenish stock or if inventory moves well.
Procedural Lapses- Incorrect or outdated inventory tracking processes can result in human error.
Demand Forecasting – Trend tracking is essential for customer service. Customer satisfaction is possible by knowing their preferences.
Warehouse Management – Operations and customer service can be slow if batch tracking is unclear.
This can be solved by inventory management.
The Key Factors to Consider When Choosing Inventory Management Software
No matter how big or small your business is, inventory management software is essential. A good inventory management system will help you avoid inaccurate records, low stock levels, shrinkage, and delays in shipment. Here are some things to keep in mind if you’re considering inventory management software.
Understanding your requirements is the first step. Software that you only need for inventory management or software that can generate reports is what you will need.
– Price- The features of inventory management software will determine the cost. It doesn’t matter if you need cloud-based software or on-site software. What features are most important for your small business?
– Customization – If you have complex requirements, then you can customize your software to meet them.
– Simplify your inventory management. You should choose a program that is simple to use, not complicated.
– Integrations – As you grow your business, your software might need to be integrated into other software such as warehouse management and e-commerce.
– Compatibility – It is important to verify that the software is compatible with mobile devices and the number of users, whether they are cloud-based or local. This allows you to access data from multiple stores at once.
Customer Support – Contact customer support if you have any questions. It is essential to have software training, support, and warranty.
The 3-Step Process of Inventory Management
A business that has a good inventory management system will have better customer service, greater profitability, and more cash flow. This is the 3-step inventory management process.
Step 1 – To track inventory, you need a batch tracking system. You will spend more time attempting to fix a poorly organized supply chain management. Make sure your inventory records are accurate, and that stock levels are adequate. A good inventory management system will help you save time, and money, and increase your productivity.
Step-2- Demand forecast to fulfill orders. For better cash flow, invest more in high-moving inventory. Avoid slow-moving items and delay or avoid them. Forecasting the demand can help you to have sufficient stock levels to meet customer needs.
Step 3 – Proper warehouse management is essential to stock and receives products or raw materials to track batches. Proper inventory management will improve profitability and reduce operational time.
Different types of inventory management
The key to a company’s success is its inventory management. A company’s health is dependent on its inventory management. It ensures that there are never too many or too few stocks. This also reduces the chance of inventory being out of stock and inaccurate records. Different methods are used to manage inventory. These are the most popular.
Stock review This is a manual method that small businesses often use. Stock review is a regular analysis of stock available and future requirements. Although this method can help to control inventory management, it is labor-intensive, less precise, and can result in less control.
Just in time- JIT refers to the process where products are delivered according to customer demand. JIT has the advantage of meeting customer demands without having to store large quantities of inventory. This method comes with supply chain risks, however.
ABC analysis – This analysis creates 3 layers of inventory. Layer A is for high-value goods and low quantities. Layer B is for goods of moderate value and low quantity. Layer C is low-value goods and high-quantity goods. This allows for separate inventory management of different layers. This methodology is important for managing supply, inventory control, and safety stock, as well as managing supply.
EOQ- This refers to the stock level that is just right to meet customer demand without having to stock up or accumulate low-moving inventory. EOQ helps to reduce inventory and ensures that the investment is as low as possible.
LIFO/FIFO- First in, First Out. This refers to the oldest items being sold first. LIFO stands for last in the first place where new items are sold.
Inventory Management Items in a Databank
A database of inventory data is a repository for real-time information. You can spot trends and identify potential problems by having detailed inventory management reports. A wide range of information is important for inventory management. This could include the date of creation, purchase, who placed it, the cost of inventory, the location of the warehouse, and so on. You can have a different database depending on the requirements of your small business.
Time tracking- This allows you to make inventory sooner or later depending on your needs. It allows for lower investment and improves cash flow.
Supply Chain Management- This helps you track and route your inventory quickly.
Cost analysis- This helps you to identify the most profitable moving products and maximize your profit margins.
Production and Order Management- This helps to manage production and ensure that you have enough materials and supplies to satisfy customer needs.
Loss Reports- This report provides information about damaged, lost, or stolen products.
Conclusion about Inventory Management
Inventory management is essential for ensuring that you have the right inventory at the right price and in the right quantities. An effective inventory management system monitors inventory needs from purchase orders to sale in the supply chain. All things considered, inventory management is vital to a company’s success. No matter how big or small your business is, it’s in the best interests of the company to implement an inventory management system.
