6 Best Practices for Inventory Management
Did you know that 46 percent of small-medium enterprises still use the pen-and-paper method to track inventory? This is fine if you only carry less than 10 items to track with no raw materials involved. Can you imagine using old-school spreadsheets if it involves thousands of products already?
This is where inventory management comes in. It is crucial for any businesses, regardless of the size, because it processes the ordering, storing, and using of inventory, including raw materials, components and accessories, and finished products. It gives business owners an idea when to restock items, what to buy or produce, and how much you have to pay for these items among many others.
Having software to help manage your inventory is not enough. Here are best practices you should follow when it comes to managing your inventory:
- Categorize your inventory.
One of the important steps for better inventory management is categorizing. This means you will separate the “stock” or actual products from “stuff” like raw materials. The most common way to do this is the ABC Analysis. It arranges your inventory according to hierarchy based on the level of priority.
Here’s how it works:
- A – best selling and highest priority stock that needs to be checked and re-ordered regularly.
- B – valuable yet medium priority stock that require monthly reordering.
- C – low priority stock and typically comes in higher volumes and require minimal reordering.
Nonetheless, you can use other inventory techniques like Just-in-Time (JIT) technique, minimal stock level, First-In-First-Out for perishable stocks, and Last-In-First-Out for heavy raw materials that is more fit to your company’s needs. Research about the different management models and choose what is more appropriate for your business.
- Work with other departments.
Now that you know yours stocks and the best practice on how to handle them, the next step is to develop a more effective plan for proper inventory management. You can only do this when you work together with the other departments and not just stop in the warehouse.
This means you need to work with your marketing, merchandising, finance, and e-commerce departments. If you plan to liquidate low priority stocks, then you should be able to coordinate with sales, marketing, and other departments to make this happen. The moment you start coordinating with the rest of the departments, the more effective and efficient inventory management system will be.
- Automate your inventory process.
Knowing what inventory management technique to employ is just one part of the process. If you want to make them more effective, then you should consider automation.
Keep in mind that managing inventory takes time and a lot of effort. By automating the process, you can reduce the amount of time you spend on counting and moving items inside your warehouse. It also streamlines the entire process because documentation is simplified and accuracy is ensured. You can now use the time saved to other equally important things in the company like improving your employees’ skills.
- Try batch tracking.
Let’s say you have goods that use the same set of raw materials – how will you process that in your inventory?
To simplify the process, you should consider batch tracking or lot tracking. This will help you efficiently trace goods along the distribution chain using a batch, or set of goods produced together using the same materials, numbers.
Automation will help you a lot to make this process more effective, so make sure you go for automatic batch tracking system that allows you to enter information about products within a specific batch.
- Consider cloud-based inventory management system.
Excel and other locally installed applications for inventory are fine. Apparently, this could mean installing the application every time; hence time-consuming and a practice you can eliminate with the help of cloud-based inventory management system. It keeps your data secured and safe, provides real-time and up-to-date inventory reports, and allows you to manage it wherever you are in the world.
It could be expensive at first since you need to pay additional premium for the package that best suits you. In the long run, this will help you save more both time and money when it comes to managing your inventory because you don’t have to transfer data from one computer to another.
- Reduce your inventory.
Inventory is related to working capital. This means if you cannot reduce your inventory by minimum of 60 percent, then you need to look into your marketing strategies to find out what went wrong. The beauty of having a proper and effective inventory management is that you can easily see whether your inventory is at 40 percent, thereby already preventing the company to circulate funds.
In case you need to reduce, here are some strategies you can follow:
- Eliminate obsolete or outdated inventory by offering it on discount, including it as a freebie for your new items, or modifying your stocks.
- Reduce minimum order quantities, share sales data with suppliers, and track existing lead times to lower lead times.
- Improve your company’s inventory forecasting with the help of real-time tracking and reporting, and large volume inventory management tools.
Inventory management can be overwhelming at first. Don’t be afraid to explore its benefits and make sure you come up with practices that will allow you to maximize and efficiently run the system.