Maintaining an organized inventory system is no small feat, especially when it comes to the more complex enterprises out there. Products are always in flux as they arrive for storage or leave for distribution. Messy inventory management can be devastating. Losing a customer is as easy as sending a wrong product or being consistently late with deliveries. Having successful inventory management strategies in place is vital to keeping customers happy and staying competitive.
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Your inventory should be set up in a way that makes it work for you – not the other way around. In this article, we will go over a few types of inventory management strategies focused on keeping your business running without any snags.
System Benefits
Before we dive into some winning strategies, knowing how inventory management systems help boost organization is key. Leveraging this type of software takes much of the pain out of setting up successful inventory practices. Here are some top benefits of adopting an inventory management system:
Improved Inventory Accuracy and Efficiency
It’s no stretch of the imagination to see that inventory management systems do wonders for accuracy and efficiency. Not only that, but these platforms also help cut costs everywhere they can. For example, tracking tools help companies maintain an understanding of how much stock needs to be available in a given warehouse. With this knowledge in hand, the warehouse can decrease the inventory they have on hand while still maintaining safe levels.
By decreasing held inventory, companies can save massive amounts of cost and effort. Some companies that use modern inventory management solutions can close down one or more warehouse locations, and save money associated with these cost centers.
Many of these systems also include functionalities that boost warehouse accuracy. Employees tasked with picking can leverage tools like these to find the correct item quickly with minimal time spent walking.
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Labor-Saving Features
Businesses are always looking for ways to save time and decrease labor costs. Inventory management systems provide several tools that focus on doing just that.
Many of the best systems involve barcode scanning or other agile inventory processing features. These types of features can eliminate labor-intensive, manual processes like individually typing in product or box numbers. Bar code scans can be done in rapid succession, allowing a single employee to process hundreds of orders in a fraction of the time analog processes would take.
Also, inventory tracking tools can help with other critical kinds of documentation and safety compliance. This article shows how, for example, inventory tracking software can help with “toxics reporting” in chemical handling operations.
Meet Demand Quickly
Like we said earlier, inventory management systems help strengthen customer service. With numerous tools taking over manual tasks or making them easier, companies can concentrate on getting their products to their customers quickly. Agile inventory processes help firms meet supply and demand curves with rapid responses. This leads to happier, more loyal customers and, ultimately, a higher level of repeat business.
These platforms also help identify how much buffer stock a company should keep to prevent stock-out situations. With the proper systems in place, demand can be studied and met instead of feared.
Coordinating Multiple Locations
Historically, larger businesses have been some of the earliest adopters of inventory management software. Maintaining multiple warehousing locations is no small feat, and in order to keep up with demand, many larger companies have to. These are expensive ventures that require tireless planning, staffing and technology to keep running.
As these management tools come into play, warehouses can consolidate their stocks and save on how much area is needed for storage. Not only can companies effectively manage multiple locations with help from inventory management software, but they can also save money by shutting down unnecessary warehouses.
Business Intelligence
When considering the benefits of having an inventory management solution in-house, it’s essential to remember the value of business intelligence.
All the various processes and tasks that are overseen by the system can provide users with a wealth of helpful data – if the business in question has analytical tools in place to take advantage of it that is. Analytics tools take information from across the entire operation and boil it down to give employees actionable insights into how things should run.
For example, analytics can predict when demand for certain products will rise. This lets managers and other users plan and order safety stock before demand rises. Companies can also discover where most of their customer base is, how they are ordering and what could be changed to give clients a better experience.
Top Strategies
Different companies have their own unique inventory management strategies based on the needs of their business, the resources they work with and the types of products they deliver to customers. Understanding the fundamentals of these strategies can help any business find a path forward, improve warehouse and inventory operations, and modernize a business of any size.
Ahead, we will go over some of the most popular types of inventory management strategies in use today. As we said earlier, no strategy is one size fits all. The unique requirements of a business should be thoroughly laid out before adopting a new approach.
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Adopt Automation
Automation is picking up steam, especially in the world of inventory management. Sticking with manual entry and analog inventory organization is a recipe for misplaced items, late deliveries and burnt-out employees.
But automation is expensive, and our current methods work! Sure, leaping into a new system can be costly, but the money it can save, it pays for itself. It is also possible that your current methods work but the real difference is that they could work even better.
Leveraging automation increases order picking and storage accuracy, boosts data visibility and sets your business up to scale with a system that is ready to grow alongside you.
Take Advantage of Analytics
Your daily tasks and processes are a veritable treasure trove of advantageous data. Demographics, demand fluctuations, stock levels and more can be analyzed and put to use thanks to cutting edge analytics tools.
Are you looking to save money? Analytics can boost your cash flow by reducing excess inventory kept in the warehouse. Are you worried about demand? Historical data can be pulled apart to determine when demand is expected to rise and fall so that you can make the right moves to get ready. Are you losing customers? Leverage analytics to improve inventory processes and speed up deliveries while increasing accuracy.
Source: TradeGecko
Analytics can also help keep track of important KPI’s that keep your operations performing up to expectations and giving you actionable insights on how to proceed.
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Using ABC Analysis
Setting up your inventory for success can make all the difference when it comes to achieving inventory management efficiency. If best-selling products are lumped together in a corner with things that are rarely purchased, you are shooting yourself in the foot.
ABC analysis splits your inventory into three categories based on how much products are worth and how they sell. Items in the A designation should be your top performers that don’t eat up vast amounts of warehouse space. B tagged products are right in the middle; they are purchased consistently but may be more expensive to store. Finally, C-list items make the least amount of money, while taking up the most storage.
Source: PAK Accountants
By dividing products up like this, inventory managers can easily define what needs to be reordered and what can be left alone.
Stay Mobile
Software with mobile capabilities is also on the rise, and for a good reason. This strategy not only helps the overall system by updating inventory as employees move around and interact with products but is also advantageous for sales teams.
Instead of being chained to a desk to find out if a product is available, sales associates can quickly log in from a mobile device to gather information that could turn an interaction into a surprise sale.
Mobility enhancing features like barcode scanners and RFID tools take the complexity out of finding and recording product data while boosting product picking speeds dramatically.
Formulas Are Your Friend
For those who aren’t afraid of dancing with some equations, there are a few inventory management formulas out there that focus on varying aspects of management:
- Reorder Point: If you are routinely having trouble deciding when the best time to order more stock is, this is the formula for you. This takes into account the sum of your lead time demand and how much safety stock you have on-hand at a given time.
- Economic Order Quantity: Imagine this equation as an attempt at near-perfect inventory balance. This formula focuses on maintaining just enough inventory to meet demand without going under or holding onto unnecessary stock.
- Safety Stocks: This formula calculates how much emergency backup you would need for a specific product to avoid selling out. This is another balancing act; you want enough safety stock to meet demand, but not so much that you waste money holding onto it all.
- Days Sales of Inventory: This formula helps you find out how many days it takes for inventory to become actual sales. In most cases, the lower the number, the better.
There are numerous other formulas and equations uniquely suited to different issues involving inventory management, but these are a good place to start.
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Just-in-Time Inventory
Just-in-time inventory is a relatively new concept that originated in Japan and has now spread all over the world. Some experts refer to just-in-time as a “pull” inventory model.
With just-in-time inventory, orders are triggered by actual customer requests. In some ways, this is similar to what many dropshipping companies do with modern e-commerce models. The basic idea is that companies don’t hold stocks of inventory on hand without actual demand — they’re waiting until the demand occurs, and then quickly trying to bring inventory through internal processes to deliver.
Just-in-time inventory models can have a dramatic effect on business costs. Some of the companies that have switched to these models can consolidate warehouse space, reduce overall costs related to labor, real estate and equipment. That’s why just-in-time inventory is a large part of how many operations officers and executives are managing the modernization of business production practices.
Leverage Forecasting Tools
Much like organization, forecasting is critical to successful inventory management. Forecasting employs many varying methods, but the two most popular are the qualitative and quantitative strategies.
Qualitative forecasting, while less sure than quantitative, predicts potential demand and changes in the market. This technique relies on expert opinions and less on numbers. Quantitative forecasting crunches the numbers by analyzing historical data to predict how demand could fluctuate in the future.
Without knowing how to respond to ever-changing market environments and customer demand businesses can fall victim to stagnation and failure.
FIFO or the First-In-First-Out Method
FIFO is in use across numerous industries and ensures that your oldest products don’t go to waste sitting in the back of a storage unit. The FIFO method pushes older products out of the door first to guarantee that they don’t become obsolete.
This method is especially important in industries that deal with perishable products. If you run a coffee shop that deals with constant milk deliveries, you would want to make sure products aren’t sitting in the back fridge going bad for no reason.
Regular Inventory Audits
The inability to accurately track items can lead to delays, lost orders and in a worst-case scenario, a loss of customers. Carrying out inventory audits regularly is essential to ensure that you avoid any operational headaches. That’s why businesses have turned to using inventory management systems to conduct audits. It’s been proven to save them time, effort and money.
The standard way of conducting an inventory audit is to choose a selection of items, physically count how many of them you have in inventory and compare that to the records in your software. However, this approach might not work if you’re a part of a large organization with inventory stored in multiple locations. In such cases, using an inventory management system to conduct an audit helps you keep better track of inventory in numerous locations. The software also lets you know if your business’ procedures for inventory audits are effective, or if they need to be fine-tuned. In addition, inventory management systems help reduce both understocking and overstocking as a result of inaccurate data. It also helps cut down the risk of theft.
Now that we’ve covered some of the major types of inventory management strategies, it’s important to cover one final point. Simply put, a given inventory management strategy is only as effective as its relationship to inventory management software.
Choosing the Right Solution
You’ve seen the benefits, you’ve read over the strategies and have concluded that adopting an inventory management system is the way to go. You’re on the right track, but before you go chasing over the most expensive system on the market, take some time to ask a few of these simple questions to guide you on your way.
Is a new system in the budget? A shiny new system could potentially turn your woes around, but you need to consider the price of entry. Luckily, many developers are turning to the cloud for their platforms. Cloud-based systems often use subscription-based models to generate revenue, which lends themselves to be cheaper than full on-premise solutions. Can you function with a cloud-based platform, or does your business require an on-premise package?
What are the unique requirements of your business? No system can solve the pain points of every business. Sit down with executives, team members and anyone else who will have to use the new system to find out what they aren’t getting out of the current solution. Whichever system you choose should solve more problems than it creates.
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Talk to vendors. This is less of a question, but still very important when it comes to selecting a solution. Compile a list of any lingering questions from employees or executives and pose them to your shortlist of vendors. Once you find a vendor that has answers to your problems, it is time to choose! If a look at some of the top performers in the market interests you, take a look at our comparison report.
Final Thoughts
Inventory management software is vital to achieving efficient and accurate storage practices. They provide numerous benefits and support a variety of strategies that work with companies of all sizes. If you are still on the fence about these solutions, worry no more. Now is the time of the inventory management system; don’t be left behind!
Which inventory management strategies have you integrated into your daily processes, and how have they changed things for the better? Let us know with a comment below!