Inventory is the bread and butter of your business, and managing it well keeps you and your staff on the same page, therefore, avoiding confusion. It's usually not that simple, especially if you're starting or experiencing a period of rapid growth for your business. Carrying out inventory in your business can turn out to be costly if you or your employees don’t know the best techniques for inventory control.
Not to worry, though, as in this article, we will discuss the best inventory management practices you can adopt in your business.
What's Inventory Management?
In simple terms, inventory management is the practice of putting systems and tools in place to track what ingredients, items, or goods are available in stock and the quantity you have of each at hand. It will give you an idea of which products you need to re-order, the amount you need, and when you need them to avoid out of stock issues.
When you effectively manage your inventory, you can be sure to have the right products in the right quantity at hand. You'll never run out of stock and will also avoid funds being tied up in excess inventory. You can also be sure that your products are moving to prevent spoilage or the products staying too long in storage.
Inventory Management Practices and Techniques Best for Your Business
Inventory management can make or break your company's bottom line. To make sure your business stays up and working and less susceptible to costly stock-outs and related issues, here are the best practices you can use.
1. Fine-tune your inventory forecasting.
When you want to stock inventory, you should make sure that you store enough to meet demand, but not too much to tie up your capital in stock that's sitting around in storage. Accurate forecasting is essential. Your estimated sales calculations should be based on past sales figures, current market trends, predicted market growth, promotions, etc.
Inventory forecasting will help you fight the temptation to overstock. Not only does extra inventory tie up your business capital, but it also comes with additional costs like paying for warehouse and insuring the excess stock.
Demand for inventory varies with new trends, seasons, or new product releases. Evaluate your historical order data and build a model around it that can predict future trends and variations.
2. Use the FIFO method (first-in, first-out) or the LIFO method (last in, first out)
The FIFO inventory method means that the goods you manufactured or bought first are the first to go out for sale. It works best with perishable products (i.e., pharmaceuticals or fresh produce like food or flowers) or non-perishables that run the risk of being outdated or expired. This method will save you money by avoiding spoilage of goods or becoming obsolete while in storage or sitting on a shelf.
The best way to use the FIFO inventory method is to add new products from the back, so that the older items are at the front in a storeroom or warehouse.
The LIFO inventory method dictates that the products added to your inventory recently are the ones to go out first. It's ideal for businesses with homogenous products or items with the same features from other companies like building equipment, metal, auto parts, sand, stone, etc. Every time you receive new products, they go to the top of the pile. That's what is sold first.
The LIFO method makes it easier and reduces the need to rotate the inventory manually and is simple to execute and understand daily.
3. Use inventory management software.
Most inventory management software will help you track your items in real-time and also help you and your employees organize your warehouse, so you know where everything is. It enables you to save money in two ways - improving your order fulfillment and reducing loss.
Without a proper inventory software system, you'll just be shoving new inventory into any available space in the warehouse. The software helps you plan your storage space, so that you know where each product goes, reducing costs incurred in lost inventory or goods forgotten in storage.
When your warehouse is well-organized, it also eases the work of employees when serving customers. They can pull and deliver the right items to fulfill customer orders.
Excellent software found on https://lilypadforfishbowl.com/fishbowl-go-app will handle your company’s warehouse inventory and manufacturing needs. It’s easy to use and makes your inventory management more effortless.
4. Know your ABCs.
ABC inventory management is an approach used to identify and optimize the high-selling products based on their economic importance. Every product is assigned its classification according to priority.
Class A is high-value products that have low frequency in sales and are small in number. Class B is moderate-value products that have an average rate in sales, and lastly, class C is low-value products that have a high frequency in sales and are large in number. As you assign products to each category, align those values according to your company’s goals.
Also referred to as a selective inventory control system, this classification shows that not all products are equal in value. Attention focuses on highly valuable items. It helps in better time management, inventory optimization, and tiered customer service.
ABC inventory management stems from the Pareto principle, which states that 20% of a company's activities generate the company's 80% profit and output. This means more focus should be placed on products that create the best performance in your business.
An inventory management system is crucial for every business, whether large or small. It helps the company take care of its daily operations smoothly.
A sound inventory system helps your business grow and can be the difference between a lost sale and a loyal customer. Implementing the above inventory management techniques starts with setting up your company and has to be done effectively and accurately. Choose the best practice that will make the most significant impact on your business.