What Are The Methods Of Inventory Management?
Order, track, and control your company’s inventory in real-time through various methods of Inventory Management – and learn where you can improve your inventory control processes.
What Is an Inventory Management System?
Forming part of the supply chain process, inventory control management is the complete tracking of all your inventory and stock quantities at any given time. An inventory management system will also monitor inventory levels at any time, ensuring you have sufficient stock for the anticipated demand. Often an inventory control management system can integrate with other software systems, such as point of sale (POS) and shipping, for more seamless operations.
What Is the Role of Inventory Management?
Inventory management is a key factor within the supply chain process that prevents business-impacting errors such as overstocking, understocking incorrect shipping, or incorrect destination. The result of such mismanagement is a massive loss of revenue and time, which is why businesses are prioritising effective inventory management systems.
What Are the 5 Stages of Inventory Management?
When it comes to successful inventory management processes, there are five key stages from the warehouse through to the customer:
- Purchasing: the buying of raw materials that are converted into finished products.
- Production: The manufacture of products using raw materials.
- Holding stock: This is the storage of raw materials as well as finished products, usually in warehouses.
- Sales: The movement of your stock to customers and the transfer of funds to your business.
- Reporting: The tracking of all sales and profits being made.
What Are the Types of Inventory Management?
There are many different types of inventory management across these five stages, depending on the particular business and industry type. Here’s a look at some of the more prominent ones.
• Economic order quantity (EOQ)
Economic order quantity (EOQ) is a formula that uses variables like production costs and demand rates to determine the amount of inventory a company should purchase as a way to minimise costs. The EOQ seeks to purchase the lowest number of units while still meeting demand, so the company doesn’t over-or under-stock.
• Minimum order quantity (MOQ)
Suppliers also rely on inventory management systems such as MOQ which is the minimum amount of stock they will sell to a retailer.
• Just-in-time (JIT) inventory management
Just-in-time (JIT) inventory management reduces inventory costs by securing raw material orders from suppliers according to production schedules. This means companies don’t sit with ‘deadstock’ – inventory that just can’t be moved and costs a company.
• ABC analysis
This inventory management technique categorises your products in order of importance, considering elements such as annual consumption, inventory value, and cost significance. You’re looking at three categories:
A: The most valuable products.
B: Products sitting in the middle of demand.
C: The least valuable products.
This form of inventory control management is great for forecasting, enhancing inventory accuracy, and allowing for more strategic pricing.
• Consignment inventory
Through this system, the vendor agrees to provide a retailer with products without an upfront payment. The payment is only made when the products sell. This system is beneficial to the retailer in that they’re able to offer customers a variety of stock without requiring significant capital; it reduces the time delay of re-stocking; and eliminates overstocking. However, the supplier will also benefit from gaining useful insights into new products, including product performance in specific markets.
• Safety stock inventory
When there has been incorrect forecasting, safety stock inventory management allows for the ordering of extra inventory to meet a sudden spike in demand.
• Dropshipping
This form of inventory management system involves third-party suppliers whereby a store will sell the stock it doesn’t have in stock. Instead, these items are sourced from another supplier, and shipped to the consumer, thereby reducing the cost of storage.
• Cross-docking
Another way to eliminate costs related to warehouse storage is cross-docking. In this instance, trucks or trains will offload material onto outbound trucks and trains which deliver to the customer.
• Bulk shipments
As the name suggests, this inventory management technique involves the transfer of goods in bulk. All inventory is stored on pallets and transported to the customer – generally big retailers. The cost of warehousing is generally offset by the benefits of bulk shipments such as profitability and lower shipping costs.
• Backordering
Backordering demands effective inventory management involving the quick creation of new purchase orders. Companies take orders and payments for products that are not actually in stock. This does mean increased sales, but delivery delays, so companies will often differentiate between ‘Buy now’ or ‘Pre-order’ for customers to manage expectations.
• First In First Out (FIFO) vs Last In First Out (LIFO)
First In First Out (FIFO) sells older inventory first to keep inventory constantly replenished, whereas Last In Last Out (LIFO) prevents inventory from going bad. This will depend on the type of stock you’re storing.
• Batch tracking
This inventory management technique allows users to monitor stocks with similar traits as a way to prevent the stock from passing its expiration date.
• Perpetual inventory management
Perpetual inventory management is the ongoing tally of inventory as it arrives in warehousing, which was previously done manually using a spreadsheet.
• Demand forecasting
Looking at previous sales, retailers can estimate the customer demand going forwards so that there is limited over- and under-stocking.
How Do You Improve Inventory Management?
There are always improvements that can be made, and when it comes to inventory management, these can translate into extensive cost savings. Here’s a look at some of the techniques you could employ to enhance your inventory management.
• Do a needs analysis
By fully understanding your inventory needs, you can better implement an inventory management system that will streamline your product movement. Included in this is an analysis of your actual inventory, prioritising inventory that needs to move fast and that which has a longer storage capacity.
• Build supplier relations
The key to a well-organised inventory management system is the development of good relations with all suppliers. This means that you’re not only benefitting from a reliable supply, but you’re also able to call on them when there is an unexpected demand as well, resulting in improved customer relations.
• Ensure data accuracy
Updated and accurate data is vital to any inventory management system. This allows you to forecast trends and meet all demands as and when they arise.
• Incorporate mobile options
All business operations are going mobile, and this includes inventory management. Elements such as barcode scanning and sales’ apps mean that employees aren’t restricted to warehouses and offices anymore. This means more oversight and efficiency.
• Invest in an inventory management system
A comprehensive inventory management system is the best way to tick all the boxes and make sure your business is on top of its inventory. Through a dedicated management system, you’re able to customise the inventory management according to your business needs and tweak operations going forward.
Signs You’re in Need of Inventory Management Software
If you’re still unsure as to whether an investment in software is right for you, then here’s a look at some of the signs you should be looking out for.
1. You keep running out of stock
If you’re at your wits’ end because you somehow keep running out of stock, despite all your efforts to the contrary, then it’s probably time for you to invest in an inventory management system. Through the software, you’re able to automatically track all inventory levels and make orders in time, while also not sitting with too much stock.
2. You’re always dealing with customer complaints
Customer acquisition and retention are central to the survival of any business. If you’re having to deal with ongoing customer complaints about late deliveries or incorrect items, then you need an inventory management system. The system will not only ensure sufficient stock but will keep in communication via automatic email updates, outlining the processing, shipping, and delivery of items.
3. Too much time is being spent on stocktaking
The manual stocktaking process is not only a risk in terms of human error; it’s also incredibly demanding on staff time. If you’re finding too much energy is being spent on stocktaking and analysis, then it’s time for inventory management software. You’re able to monitor inventory in real-time continually, and benefit from updated inventory information.
4. You’re not keeping up with the increased inventory levels
While a spreadsheet was once sufficient to keep track of stock, as your business has grown, this has become an unreliable method of inventory management. Inventory management software is a scalable solution to your business’s ever-growing needs.
By investing in a customised inventory management solution, you’ll benefit from the comprehensive features that were once time-consuming tasks for staff. In addition to the scalability, efficiency, and cost-effectiveness, you’re able to access all inventory data on a fully personalised, visual dashboard that is continuously updating. Ensure you’re partnering with a reputable vendor that can provide you with specialised insight into inventory management.
