Why is Inventory Management Needed?
Managing inventory is an essential part of any business to keep the flow of transactions organized. It ensures that your business knows how much you have, how quickly materials are being used, how many products are in stock, and how many products are selling. Part of it is tracking how much stock is needed and predicting when extra stock or less stock is required for a certain good. This allows you to inform customers when you can expect to get a product out. It also gives an idea of the volume of orders that can be fulfilled. In addition, it is also a gauge for whether an expansion of inventory space is needed. Without inventory management, you might end up with too little or too much of one stock. Either way, this could affect the efficiency of the flow of goods.
Approaches to Inventory Management
The general idea of inventory management involves producing records of the amounts of goods on hand or required. However, there are many techniques you can adopt to suit your company’s style.
The most common model is known as the EOQ, which stands for Economic Order Quantity. It is a formula used to determine just the right amount of stock needed for each product.
- ABC analysis
Another common approach is the ABC analysis. Stock is segmented into three categories. Category A includes products that bring the most revenue (80%). Category B consists of products that fall in-between the two categories, bringing a modest amount of revenue (15%). Category C consists of products that bring the least revenue (5%). ABC analysis helps visualize which stock is the most valuable and should be invested in.
If those two aren’t optimal for your company, you could go with FIFO: First-In-First-Out. Products purchased first are the first to be sold to prevent worn-out, unsellable goods. FIFO requires organization of newer stock at back and older stock at the front.
Conversely, you could go with LIFO: Last-In-First-Out. Products purchased last are sold first.
Last on this list is JIT: Just-In-Time. Inventory is only restocked when it is needed. It can be risky but can save on inventory management costs as it prevents wasteful investment in unneeded goods.
These approaches are only a few of the models used for inventory management. There are many more that have been developed and publicized to suit more needs. For newer businesses, it might be hard to determine which one suits your company best. However, establishing a method early on will help prevent future mishaps.
Read about more inventory management techniques here: https://www.bigcommerce.com/blog/inventory-management/#inventory-management-techniques
Challenges and Troubleshooting
As stock management is a complex process, it’s wise to think of any potential obstacles that could affect efficiency. One thing to consider is about finding balance. Needs of customer demand should be met while also minimizing assets going into making or keeping products. To keep track of this, it would be useful to turn to current trends as well as your own market trends. Utilizing software to help predict trends would be helpful when deciding which goods need more or less stock. Inventory management software is also helpful for another challenge: achieving accurate records of stock. When carrying many items, it can get difficult to keep track of how much there is. It’s not feasible to do manual counts once your brand grows larger, so it’s important to find the right technology to make this process easier. Storage can also become an issue for managing inventory. Determining whether to purchase a storage unit for excess stock is something to think about as business grows. There are many things to consider before purchasing extra space, and it depends on your business and personal preferences. Lastly, good organization of inventory management is crucial to avoid several potential complications. Disorganization could lead to miscounts. Making it hard to locate items in a warehouse will cost time and be inefficient. A solution is to stick with simple labeling systems and to have in-depth training for employees on the inventory process. This way, any confusion is minimized.
As mentioned throughout, software and other technology can aid in the management process greatly. For instance, utilizing data analytics on your website helps track what your customers are interested in. By doing this, you can estimate which products might need more or less stock. RFID, or radio-frequency identification, technology is something you can look into for record-keeping. It logs every product’s journey from or to a warehouse or storage space automatically. This reduces inaccuracy and human mistakes if they were tracked by hand.
Read more on technological advancements for inventory management here:
Optimizing Inventory Management
It’s worth putting in effort to optimize inventory management, and it’s not an overnight process. When it comes to inventory management, efficiency, timeliness, and organization are three critical aspects. Being efficient encapsulates forecasting demand and planning stock levels to cater to those demands. Factoring in the time needed for good inventory management ensures customers can get the products they want and their orders fulfilled. Staying organized guarantees fewer hiccups down the road when it comes to keeping records of stock. Regardless of how small or big a business is, optimized inventory management is part of the foundation for success.
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