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5 Inventory Management Techniques to Implement in Your Business

Managing inventory is one of the largest aspect of business operations – making it crucial to have an effective system in place to successfully keep it controlled. To ensure a business’ inventory control system will address a business’ needs, a supply chain manager must have an in-depth understanding of what systems are available.

managing inventory

FIFO (First-in-First-Out)

First-in-First-Out (FIFO) is the process of ensuring that the oldest stored inventory will be used first. When a warehouse or fulfillment center employs FIFO, it stores inventory so when new inventory is added, the oldest stock is most accessible, preventing it from becoming outdated.

FIFO is a valuable strategy for businesses across a spectrum of product types, especially for items that change seasonally, go in and out of style, or expire. FIFO requires more diligence on the warehouse personnel or fulfillment company, meaning rate increases or additional costs could be involved. However, FIFO can benefit most product inventory processes and is an important consideration for any supply chain manager.

Regular Auditing

Having an accurate count of the inventory on hand at any given moment is crucial for most businesses. However, it is almost impossible to keep completely accurate numbers depending on the system type and the operation’s size, scope, and personnel. Audits help verify the accuracy of the product counts in the warehouse in comparison to the numbers recorded in inventory.

Some fulfillment centers employ audits on a yearly basis.

Depending on the warehouse or catalog size, this method could take a significant amount of time. In addition, discrepancies are often discovered long after mistakes are made, causing more difficult to pinpoint, diagnose, and improve the processes. However, annual audits are often more manageable, allowing for resources and time to be allocated to the process only during that specific time of year.

Other auditing methods include spot checking and rolling audits.

Spot checking refers to randomly picking a product and comparing its physical count to its recorded count at any given time. Rolling or cycle audits schedule certain products or categories to be checked for accuracy throughout the year (i.e. once a month) rather than conducting a single audit once a year. These methods both spread the work out over the course of the year on more frequent occurrences.

Reorder Points or Par Levels

When operating a supply chain or fulfillment process, an important metric to develop and continually improve is a par level, or reorder point, for each product. These terms refer to the minimum number of any product that should be kept on hand at any given time. Once this number is reached as products are sold, new product must be ordered or manufactured.

Setting up a system or process for reliably triggering new production is a critical necessity for the ordering or supply chain manager. Breakdowns in this process could result in being out of stock and unable to fulfill customer orders.

ABC Analysis

The ABC analysis refers to rating products based on their value and volume levels. This information allows warehouse personnel and other managing parties to correctly prioritize, place, store, and move stock.

For instance, an “A” rating could refer to a high-value item that moves at a slower frequency; “C” could refer to a low-value item that moves at a high volume; and “B” could refer to a mid-value, mid-volume product.

This type of system is valuable for vendors that offer a wide range of product types and values (i.e. department stores or businesses that offer large catalogs of available items). It allows fulfillment personnel to quickly identify products they will need frequent access to and products they may not often interact with.

Point-of-Sale (POS) Systems

Point-of-Sale (POS) systems allow tracking to take place from the moment a customer makes a purchase. POS systems are often computer applications that integrate with internal inventory software, making real-time inventory updates possible.

Systems have proved to be especially helpful for applications where inventory could be located in multiple places at once, when retail locations are involved, or when the number of available products is large or involves many variations (i.e. sizes, colors, or other variations).

These systems can be expensive to buy or use, but there are types of point-of-sale management for small businesses that can be obtained or used at a reasonable cost.

Inventory control systems come in a host of sizes, types, costs, and functions. Inventory management techniques can be as unique as the businesses that employ them – from simply spreadsheets to huge computing marvels, capable of tracking the most minuscule processes within multimillion dollar companies.

By spending a little time exploring the available options, a supply chain manager will eliminate costly headaches and avoid potential mistakes in the long run.

Learn More

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Sources

http://www.informit.com/articles/article.aspx?p=2192703&seqNum=3

https://www.shopify.com/blog/70603013-warning-youre-losing-money-by-not-using-these-8-inventory-management-techniques

http://us.accion.org/business-resources/articles-videos/inventory-management-techniques