Inventory management allows you to control the number of goods and raw materials that are in stock and determine how much you need to purchase. This process includes planning the purchase of goods and raw materials, controlling their use and sale, auditing inventory levels, and ordering the necessary quantities.
Effective inventory management has a variety of solutions for all organizations. Warehouse size, inventory type, and SKUs all impact your inventory management strategy. Therefore, inventory management is a dynamic process, and you can improve it with the help of modern software and advanced methods.
How to effectively manage inventory: Basic rules
Businesses usually deal with 4 types of inventory:
- Raw materials for production.
- Work-in-progress (partially assembled goods).
- Finished products.
- Other goods for maintenance, repair, and operation that are not used directly for production but are necessary for the smooth operation of the warehouse.
Tips for effective warehouse inventory control
You need to start with an inventory audit to keep your inventory under control. It means checking the availability of products and equipment in stock and comparing the data obtained in your documentation or software. It is the very first step to forming new, compelling product control and management approaches.
Define EOQ
EOQ is a balanced amount of products to meet demand in a timely manner but not dependent on the expiration date. This indicator is determined based on the company’s turnover. Therefore, there can be more products with high demand or seasonal products kept in stock than goods that rotate more slowly. Also, the EOQ formula considers data such as production cost, delivery speed, and storage cost.
Determine the nominal level of inventory
Use the formula
(average stock used during the period + safety stock) / number of deliveries during the period
The resulting number is the nominal level for your enterprise. The nominal level gives an understanding of when the next order for delivery should be made so that the production or turnover of goods does not stop. If the turnover rate of the product changes due to seasonality or scaling of the business, consider these factors as well.
Keep inventory levels under control
You can use one of the appropriate strategies for this:
- Forecasted demand;
- Real demand;
- Made-to-order products.
There is no universal counting strategy, and it is best to start from the specifics of your business.
Use FEFO if you are dealing with perishable goods
FEFO is an inventory count that indicates which products in the warehouse should be sold first because of their limited shelf life. Although this technique is most often used to account for food products, it can also be applied to other groups of goods, especially those that lose relevance, for example, collections of branded clothing.
Use LIFO carefully
LIFO is an approach that allows you to keep a certain amount of products in stock that will cost less than your new items. It is especially relevant for such products where the price is constantly increasing. However, despite the advantages, it has complications in taxation and accounting, so experts only advise using this scheme occasionally.
Prioritize based on inventory classification
Classify your inventory based on demand, lead time, and cost of goods sold. It will help you identify priorities and opportunities for improvement.
Do regular check
In this way, you can guarantee the availability of the necessary names in the warehouse, identify discrepancies, and notice points that should be refined.
Automate processes
Inventory management software helps automate order processing, inventory level monitoring, and data analysis tasks. You can also implement systems of barcoding and scanning to improve accuracy and reduce the risk of errors.
Communicate with suppliers and understand their processes
You need to know how long it takes to process your order for delivery and additional procedures. It gives you an understanding of whether your partners can provide you with the quantity of product you require and whether they will deliver goods in the required timeline.
Final Word
By following the tips mentioned above, you can reduce costs, increase efficiency, and ensure your business remains stable or even can scale. Probable, even some of them are the missing points that keep your business from operating perfectly.