What is inventory management?
Inventory management is the art of keeping a tab on an organization’s pile of goods and their specifications, including weight, dimensions, quantity and the place of storage. The objective of inventory management is to help you maintain the right mix of stock so that you never have to lose out on business because of a dearth in inventory.
While effective inventory management is often the mainstay of doing business, the optimal method may vary across organizations. Stated below are five inventory management techniques that not only help you save big on money but also bring in efficiency across operations.
- Set minimum levels for products
Having ‘par levels’ ready for all products can contribute to easy inventory management. ‘Par’ or minimum levels serve as an alert, in case the quantity of any product/raw materials starts to dwindle and falls beneath the accepted levels.
The moment it does, you would know it is the right time to place the order. Typically, products attach different par levels – considering such levels depend on how easily the product can be sold or restored to pre-set par levels.
- Abide by the FIFO principle
First-in-first-out (FIFO), is an effective inventory management technique that helps you cut down unnecessary expenses. It means that the oldest inventory, one that was first-in, is sold at the beginning (first-out).
Adhering to this helps avert spoilage or dead stock, thus helping you save money. While it’s a common notion that FIFO comes in handy only in case of perishable goods, abiding by this principle can be of much help with non-perishable goods as well. This is because the chances of products being rendered irrelevant – be it in terms of production, manufacturing standards or packaging – generally, increase over time.
- Manage relations with suppliers
Adaptability is the key to success and inventory management is no different. Being a component of supply chain management it Maintains cordial supplier relations that can go a long way in ensuring that you can quickly replace a slow-selling product, restock a fast seller or troubleshoot manufacturing glitches.
Moreover, with a steady relationship with your supplier, chances are they would be willing to modify the bare minimum quantities to your advantage. Set up a clear communication course with your supplier so that they can chart out an actionable plan in order to fit in urgent requirements for inventory renewal and overall management.
- Plan for contingencies
While contingencies come up when you least expect them to, foresight and the ability to take prompt decisions can help you handle them with ease. That being said, it can help you stay better prepared, should you know a list of typical contingencies such as:
- Hitting a purple sales patch and overshooting your stock
- Running into cash flow problems, thereby not being able to purchase products and replenish inventory on time
- Having a low-selling product occupying the maximum storage space
- Not reserving a product while you have orders in the pipeline
As much as it is important to move ahead with a positive mindset, it is equally essential to stay guarded against potential shortfalls and miscalculations.
- Sort products into categories
Be it a manufacturing concern or otherwise, chances are that some products would require more attention and upkeep as compared to others. An ABC analysis puts inventory management on the right path, by categorizing products and separating the ones that need more attention from those that don’t. Try and slot all the products in the three basic categories:
- Category A: High-value products with low sales frequency
- Category B: Moderate-value products with moderate sales frequency
- Category C: Low-value products with higher sales frequency
At the same time, it is important to accurately predict the demand for goods and project future sales by analyzing current trends in the market.