Inventory Management Secrets: 4 Steps to Implement Today
Are inventory problems plaguing your business? Whether your team needs better insight to the status of inventory or your goal this year is to reduce your inventory carrying costs, having the right processes in place is essential to effectively managing inventory. In fact, to illustrate how impactful the right inventory management practices can be, a study by the Aberdeen Group reveals how companies reduced their inventory by 17%, decreased stock-to-sales ratios by 28%, and achieved 97% inventory accuracy using inventory management best practice solutions. If you’re like many business managers, you could significantly impact your bottom line by implementing the following 4 key steps.
Step #1: Better anticipate inventory needs.
It’s hard to find the right balance. While you don’t want to lose sales due to stock-outs, you also don’t want to have your assets tied up in slow-moving inventory. Two inventory management techniques we suggest for better anticipating requirements include:
- Make projections based on past sales. For each month or quarter of the past year, consider the numbers of units sold for each product. Depending on your business, you may need to make adjustments based on seasonality.
- Set priorities for products that must stay in stock. This will help your purchasing staff determine how they spend their time, especially when things get busy. You can do this by assigning your products to groups based on demand. For example, Group A would contain a limited number of products with very high demand. These are items your purchasing department identifies as high priority and works hardest to keep in stock. Group B would contain products with mid-level demand and slightly lower priority for purchasing. Products in Group C would have the lowest demand and therefore lower urgency.
While you can manage the above steps without investing in new technology, the more products you have the more complicated this analysis becomes. Utilizing an ERP solution will allow you to take the above information and set inventory management rules in the system based on amounts and frequency. You can set min/max levels in your ERP and run reports to analyze inventory levels. Your purchasing staff could then generate purchase orders automatically based on reports.
One other process we’d like to recommend you consider is Vendor Managed Inventory. Certain products could be managed effectively by vendors who come in to review and refill your stock on a set schedule. These vendors would need access to your inventory data, and this is best streamlined if you have an ERP from which you can generate reports.
Step #2: Improve inventory accuracy.
To avoid the enormous year-end inventory headache surrounding lost and misplaced stock, many companies implement cycle counting. By performing daily cycle counting, you can quickly identify issues and correct them before they become bigger problems.
Eliminating data re-entry errors is also important for inventory accuracy. If you are trying to manage inventory using spreadsheets, consider whether it’s time to step up to an ERP solution. ERP systems flow data forward through every step in the process, from Sales Orders and Job Management through to the Supply Chain, Fulfillment and Accounting. See our related article, When is it Time for an ERP?
If you already have an ERP, consider utilizing barcode scanning in your warehouses to help further eliminate errors while also reducing staff time spent on manual processes.
One other action to consider is implementing Electronic Data Interchange (EDI) in order to improve communication and collaboration with your trading partners. EDI allows you to replace the faxing and emailing of documents with an electronically generated document that is sent directly between yours and your trading partner’s computer systems. This automation helps to reduce errors and leads to faster business cycles. To learn more about EDI, see our related article, 10 Ways EDI Improves Your Bottom Line.
Step #3: Reduce inventory obsolescence costs.
Products that have a shelf life or that lose value over time need to be rotated out of your warehouse more quickly than newer product. Do your inventory management processes include techniques that encourage older stock to be used up first?
You can reduce your inventory obsolescence costs by using the FIFO (First In First Out) inventory method. This capability is best achieved using an ERP system. Your system would track the inventory in conjunction with the associated Lot or Serial Numbers for those items, and help your staff identify older stock that should be pulled first during fulfillment. By using FIFO, you can significantly reduce the amount of product that is written off against your bottom line.
Step #4: Improve inventory traceability.
As part of inventory management, traceability for many organizations is a regulatory matter, with a need to track the components of products from their producers all the way through to the sale to consumers. Such is the case for chemical, food and pharmaceutical companies. Companies with stringent quality control measures utilize traceability techniques to identify the sources of problems. Lot/serial tracking of materials from vendors through to the final sold product can help you to reduce the amount of loss and liability for the company. This type of tracking is best achieved in an ERP.
Need help with Inventory Management?
Several of the inventory management techniques we identified can be achieved through relatively simple changes in your planning processes, while others may require you to make new investments in technology. Ultimately, if your inventory is out of control, you will find that investments in technology are worthwhile as they result in increased customer satisfaction and have a significant ROI.
We would be glad to discuss your inventory management concerns and help you find best fit solutions to meet your business goals. Please contact us today to learn more.