Five inventory management techniques that will change your business forever
Inventory management is a combination of the systems, processes, and software that you use to manage how much inventory you have over time.
For any company that handles physical goods, this is very important to ensure that business runs effectively, and that cash flow is maintained.
If your inventory isn’t managed correctly, it could result in significant issues, from not having the stock to sell when demand is there, to having a warehouse full of perishable goods and not being able to distribute it to customers.
Because of these risks, there are several techniques and types of processes that you can implement to help minimize issues and maximize your profitability.
Along with this is the software you can implement that will help you to see what’s going on, and that will make your life much easier, such as LilyPad for Fishbowl Warehouse Management Licensing.
Par levels are one of the first things you should look to implement when trying to improve your inventory management systems. Par levels are the minimum number of items you need to have in stock at any time, and if the stock gets close to this or goes below it, you know you need to order more.
Setting appropriate par levels will take some trial and error, but as you get more information about how your product sells, you’ll be able to get a more accurate par level over time. This will naturally vary for different items you sell, and may also change with seasonality, so build this into your system as you move through the year.
A key benefit of setting par levels is that it empowers other people in the business to make decisions, and restocking isn’t based on intuition. If an item hits its minimum par level, then an employee knows to make a new order without having to waste time getting approval.
FIFO (first-in, first-out)
First-in, first-out is a model that defines the order in which you sell your stock, starting with the oldest and moving to the newest. This is particularly useful if your inventory is perishable such as foodstuffs, and helps to ensure you don’t end up with stock that you can no longer sell due to it reaching a sell-by date.
The system also applies to non-perishables, though, as the majority of stock that ends up in the back of a warehouse will naturally degrade over time. By selling the oldest stock and keeping the new, you’re helping to increase the quality of the product you’re offering and won’t end up with a product that’s no longer up to the standards that your customers will expect.
The main thing you’ll need to implement a first-in, first-out operation is an organized storage facility. This means that deliveries are stored with the system in mind, with new products being added to the back of the warehouse, and keeping the older items at the front ready to be dispatched.
If you already have experience with inventory management, you’ll know that the situation can change quickly, and being flexible is a must. This means having the ability to return items that aren’t selling as soon as forecast, or getting new stock that’s selling out in quickly to meet demand.
All of these situations mean asking your supplier for stock that’s out of the standard delivery routine. To help guarantee that you can get the stock you need in on time, you’ll need to build a strong relationship with your suppliers to encourage them to make an effort to get the goods to you when you need them.
This means both being friendly with your contact, and also being a reliable partner. If your supplier knows you’ll be buying stock from them consistently and won’t leave as soon as a better price is offered to you, then they will be more likely to stand by you.
You also need to communicate when you know that there may be a challenge, so that they are prepared rather than just expecting them to adapt to your command. Along with this, small things like remembering a birthday or sending a thank you when tight deadlines are met can go a long way.
Plan for all situations
Inventory management is a fast-moving game, and you’ll need to be ready to adapt to all sorts of changes. A few to have plans in place for are:
- There’s a cash flow problem, which means you can’t pay for a stock that you need.
- Demand is higher than expected, and the stock sells overnight.
- A product doesn’t sell as quickly as expected, which increases storage costs.
- Your supplier goes bust or stops selling a key product.
- A miscalculation means that you have less stock than you expected.
These are all issues that are very likely to happen when managing inventory, so it’s best to be prepared for them so that you can minimize the impact.
Think about the best way to react to the problem for your business and your customer, and use the good relationship you’ve been building with your supplier to come up with strategies if something happens.
Perform stock audits
If you have a system that tells you how much stock you have, it can become easy just to assume that they are correct. There will be a time, though, that something isn’t entered into the system correctly that may cause a more severe issue.
To avoid this audit your physical stockand make sure that the numbers match up. You may only need to do this once per year, but it’s worth doing to see if there have been any gross errors.
In addition, it can be a good idea to spot check your inventory, which is a smaller audit of perhaps one delivery or one product. This doesn’t take as much time or effort as a full audit, but can show any systems that aren’t being followed correctly and allow you to correct them before anything more serious happens.
Photo by Jezael Melgoza