What is inventory management best practices ?
Inventory management is the process of tracking and monitoring the stock of a company's inventory to make sure that it is at the right location, quality, and quantity. It is an important part of any company's business management because an organization that runs out of stock is unable to fulfill orders and customers. If you're running a small business, being able to manage inventory well is essential. You need to have a clear picture of what you have so that you don't run out of stock and can fulfill customer orders when they arrive. Keep reading this article to find out what you need to know about inventory management.
Inventory Management Best Practices- A Guide to Controlling Your Inventory
The Basics of Inventory Management
Inventory management can be simply defined as having the right inventory in right quantity at the right time with right cost. Effective inventory management system tracks inventory need from the stage of purchase order till sale of goods in supply chain. Effective inventory management includes various aspects like process of order management, storing and using company's raw material and the finished products.
The inventory management best practices identify and assure to have the right demand forecasting of stock levels to fulfill customer service and also issue warning for shortage of the stock levels. Poor inventory management may lead to dead stock, or unsold stock levels reducing the cash flow for the company.
5 key stages of inventory management-
Purchasing- Purchase of raw materials to turn into final products, or buying products to sell.
Production- Preparing the final product from its constituent parts.
Stock Holding- Storage of raw materials and final products before sale.
Sales- Making your products reach out to customers, and taking payment
Reporting- Generates report on cash flow and profitability for small business.
Why is Inventory Management Important?
Inventory management helps small business to make sure that there is rarely too much or too few stock levels on hand. It also limits the risk of stockouts, inaccurate records, and restricted cash flow.
Inventory management is beneficial in many ways for a company. It assures that the customer demands are met at the right time leading to enhanced customer service and satisfaction. It raises the profit of the organization by making you invest in just the right amount of stock and maintaining the cash flow.
Benefits of Inventory Management
Saves Money- Understanding the inventory need makes you invest money in the right stock levels at the right time. Inventory management best practices save money as well as maintain cash flow for small businesses. It also helps in-store management and warehouse management.
Improves Cash Flow- Inventory management allows you to spend money on the stock that sells.
Customer Satisfaction- Inventory management enhances customer service and customer satisfaction.
There are challenges associated with inventory management as well. Inventory management may give you accurate stock levels but the challenge crops up when you have too many stock levels as dead stock.
There are other challenges like not having safety stock to fulfill orders. Also, the biggest challenge is not understanding demand forecasting of inventory. Here are a few other challenges with inventory management-
Stock Levels- Having accurate stock levels is vital to know when to refill the stock levels or good inventory which moves well.
Procedural Lapses- Outdated or manual processes of inventory tracking can lead to human error in reports.
Demand Forecasting- Tracking trends is important for customer service. Knowing preferences will lead to customer satisfaction.
Warehouse Management- Customer service and operations slow down if batch tracking is not clear.
Inventory management can help eliminate this challenge.
Inventory management is a tricky process.
It’s not just about keeping your shelves stocked and your customers happy. You need to manage the inventory of your business, which is much more complicated than it might seem at first.
Key Factors for Selecting Inventory Management Software
Inventory management software is a necessary requirement irrespective of the size of your business. An effective inventory management system helps you avoid the risk of inaccurate records, faulty stock levels, inventory shrinkage, and shipment delays. If you are considering implementing inventory management software for your business, then here are a few points to consider.
- Requirements- Understand your requirements first. Whether you need software only for your inventory need or software with advanced features like report generation.
- Cost- The cost of the inventory management software depends on its features. Whether you require cloud-based or on-site software. The kind of features you require for your small business.
- Customization- If your requirements are complex then you need to customize your software as per need.
- Ease of use- One of the primary requirements of software is to simplify your inventory management. Choose a software that's easy to use rather than complex.
- Integrations- As your business grows, your software may need to be integrated with other software like warehouse management, e-commerce, and purchasing systems.
- Compatibility- You need to check if the software is compatible with mobile devices, the number of users who can use it, cloud-based or on-premises, and others. It helps you to access data from multiple stores in one place.
- Customer Support- Check for customer support in case of any difficulty. Warranty, assistance and training for the use of software is vital.
The 3-Step Process of Inventory Management
Any business with effective inventory management will typically have better customer service, higher profitability, and improved cash flow. Here is the 3-step process of inventory management.
Step-1- You need to have a batch tracking system to track inventory. In case of an untracked and unorganized supply chain management, you will spend more time troubleshooting. Ensure the inventory records are accurate and stock levels adequate. Good inventory management will save time and money along with increased efficiency and productivity.
Step-2- Demand forecast for order fulfillment. Invest more in high-moving inventory for better cash flow. Avoid or delay the purchase of slow-moving products. Demand forecast can help you in having adequate stock levels to fulfill customer requirements.
Step-3- Having proper warehouse management to receive and stock products or raw materials for better batch tracking is necessary. It will reduce operational time and increase profitability with proper inventory management.
Different Types of Inventory Management
Inventory management is a vital factor in a company's health. Effective inventory management successfully assures that there is never too much or too little stock on hand. It also limits the risk of going out of stock or inaccurate records. Inventory management uses different techniques to keep stock of the products. Here are some of the most common ones used.
Stock review- This method is usually manual and used by small businesses. The stock review involves regular analysis of stock on hand and projected future needs. This method can provide control over the inventory management process, however, it can be labor-intensive and less accurate.
Just-in-time- JIT is the methodology where products reach after citing customer demand. One of the biggest advantages of JIT is that the demands of the customer are fulfilled without keeping large quantities of inventory in a warehouse. However, there are supply chain risks to managing inventory involved with this methodology.
ABC analysis- This analysis creates three separate layers for the inventory. Layer A represents high-value and low-quantity goods. Layer B represents moderate-value and moderate-quantity goods. Layer C represents low-value and high-quantity goods. It facilitates to have separate inventory management for different layers. Factors like inventory control, safety stock, and managing supply are important in this methodology.
EOQ- It refers to just the right stock level to fulfill customer demands without running out of stock or stacking up low moving inventory. EOQ reduces inventory to the minimum and makes sure the investment is the least possible.
FIFO/LIFO- FIFO refers to first in first out where oldest items are sold first. LIFO refers to last in first out where newest items are sold first.
Keeping track of inventory can be a headache.
What’s the right balance of stock to have? How do you know when to reorder? You’ve got software that tracks your inventory, but it’s not telling you what you need to know.
Inventory Management Items in a Database
An inventory database is a repository of real-time data. Having detailed inventory management reports helps you in spotting trends, maintaining adequate supplies, and spot potential future problems. It is always advisable to have a wide variety of information for your inventory. These could be the date of creation or purchase, who placed the order, cost of inventory, location of the warehouse, etc. There can be a different database as per the needs of your small business.
Time tracking- It allows you to produce inventory earlier or later based on need. It helps in least investment and better cash flow.
Supply chain management- It helps in quickly tracking and help routing your inventory.
Cost analysis- It helps you identify the best moving products and profit margin with them.
Production and order management- It helps in better management of production with having adequate materials and supplies to meet customer demands.
Loss reports- It provides you information of damaged, lost or stolen products.
Conclusion on Inventory Management
Inventory management helps you in having the right inventory in right quantity at the right time with right cost. Effective inventory management system tracks inventory need from the stage of purchase order till sale of goods in supply chain. In all, inventory management plays a vital role in company's health. Irrespective of the size of your business, implementing an inventory management system is in best interest of the business.
Managing inventory is an integral part of any business, but it can be tricky.
Inventory management best practices can help you navigate the process and make the most of your supplies.