Inventory management can be customized for your business. It doesn’t matter if you own a retail establishment, auto parts shop, restaurant or construction company. Your materials can be considered inventory, and managing it is directly related to the cost of doing business.
There is no absolute best technique, as it depends on the type of business and the inventory it has. Here are some of the most widely used inventory management tactics.
ABC Inventory Analysis
This is an inventory categorization method where inventory items are divided into three categories A, B and C. Category A includes the most valuable items, and category C consists of the least valuable. This method aims to draw the decision maker’s attention to the critical few Category A items over the other categories.
First In First Out (FIFO)
A pretty much self-explanatory term, and an important principle in inventory management. Under this method, the stock that came in first is sold first. This is the method you should follow if your business deals with perishable goods, so you don’t end up with spoilage.
Last In First Out (LIFO)
As the name indicates, under this method, the last inventory item purchased is the first one to be sold. This method is mostly used when
businesses assume that their inventory cost will increase over time and prices will inflate.
Setting Inventory Par Levels
It always helps to have a minimum number of products in hand. When your inventory levels dip below this level, it is time to order more. Par levels vary by product, how quickly they sell, and how long it takes to restock. This not only makes it easier for you to make decisions but also allows your employees to make decisions on your behalf.
Manage Supplier Relationships
A huge part of successful inventory management is quickly adapting to changes. To do that, you need to maintain a strong professional relationship with your suppliers. They will have to be willing to work with you to solve problems—whether returning slow moving products or quickly restocking a fast moving product. Maintaining such relationships isn’t just about being friendly; it’s also about clear and proactive communication. If you’re expecting an increase in sales of a particular product, let your suppliers know. Have them inform you when that product is low in supply so you can cut down on promotions.
It is always better to have a contingency plan in place for your inventory. You can never be completely certain of what might be coming your way. What if you oversell your stock due to a spike in demand? What if you don’t have enough money to pay for inventory you desperately need? Take a look
at your inventory plan, identify all possible risks and come up with a contingency plan.
Perform Regular Inventory Audits
Although there are software tools that can let you know how much product you have in stock, make sure that the numbers shown match what you
actually have in stock. Physical inventory involves counting your inventory
all at once. Most businesses do this once a year. If you have a lot of products, you can choose to spot check them. This means taking count
of a random product and comparing it with what the count is supposed to be. Rather than counting everything at the end of the year, you can also do a cycle count. A different product is checked on a daily, weekly or monthly
basis on a rotating schedule.
Accurate Inventory Forecasting
Accurately predicting demand can make the difference between good and really good inventory management. There are multiple variables involved in predicting demand; you can never be 100% certain. However, do it right,
and you’ll get close. These are some factors to consider while forecasting demand.
• Market trends
• Previous year’s sales
• Present year’s growth rate
• Seasonality and economic conditions
• Promotions and ad spend
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