
Six Techniques to Bullet-Proof Your Inventory Management Processes
Inventory management is an often-overlooked area that's vital for proper retail business operations. Without the use of appropriate systems and software, inventory problems can cause massive headaches with over and under ordering stock, sometimes breaking a business altogether. There's a large body of research and techniques that can be used to improve your inventory management, though, which will help to minimize errors and maximize profit.
Safety stock inventory
This is a technique used to prevent you from not having stock when demand is higher than expected. Not being able to fulfill orders that are available is one of the most frustrating issues a company can have and will lead to less than optimal profit being made. The technique is often used to minimize the impact of changes that couldn't be predicted, or to reduce the impact of incorrect forecasting.
First-in, first-out
Often given the acronym FIFO, this technique is commonly implemented when stock has a predetermined expiry date such as perishable goods or food and supplements. The main objective of this system is to sell stock in the order that it comes into the warehouse to minimize the risk of goods perishing before they can be sold.
Batch tracking
This is used to track the status of a batch of products that's the same and may have the same expiry date, for example. This helps to minimize the need to track every individual item and reduce how much stock is in your inventory management system. This batch of goods can then be treated as one item and moved around the warehouse at the same time, without having to be counted dozens or hundreds of times.
Dropshipping
This is an interesting form of inventory management where the stock is delivered directly from the supplier to the customer, with you just being the demand generator. Avoiding the middleman and having products delivered directly is a benefit to you and the supplier by cutting high costs for storage and transportation for you as the retailer, and the supplier gets demand without having to do any customer generation themselves.
Six Sigma
This is a method to reduce or eliminate a problem or minimize its impact and uses a defined method of problem-solving to get there. This includes defining, measuring, analyzing, improving, and controlling (DMAIC) systems and processes to improve business function. The basic flow of this starts with measuring your inventory management process to asses its baseline performance before making any adjustments. You then use a variety of analysis tools to find the causes of your problem, be it too much stock, or too little or not enough flexibility, and then improve it by eliminating the cause of the issue. Once the process has been improved, you can then control and monitor it to ensure that the issue doesn't arise again.
Demand forecasts
Forecasting should be a key part of your inventory management system, and attempts to estimate how much demand there will be over a set period. The most effective way to do this is by starting with previous data and using this to project the next year, considering increases in demand and other factors that might be unique to your industry. The most important thing about a forecast is that it needs to be adaptable, and as new elements appear, they should be taken into account, and a new forecast is created.
Common Inventory Management Questions
What are the goals of inventory management?
The main objective of inventory management is to create a system that gives visibility of your section of the supply chain, primarily having goods delivered, packing them, and shipping them on to the consumer. Understanding this flow of goods gives you the ability to make informed decisions on how much stock you need and when you'll need it, which in turn, minimizes risk and increases profits. The goal should be to have your inventory come in and out of the warehouse and into customers' hands in a streamlined and efficient way with minimal issues or errors.
How do you measure successful inventory management?
The primary way to measure if the techniques you're implementing are working is with data, and the best way to get this is with an inventory management software system like Lilypad Fishbowl integration. Once you're tracking your inventory with easy to understand data and reports, you can then follow this data over time and look for changes. Check for data points like the number of mis-shipments and the amount of dead stock, and see if they are changing month on month or year on year. If the figures are trending upwards, then you know that the systems you're implementing are working and of benefit to the business.
Who should take care of inventory management in a business?
The answer to this question very much depends on the size of the business. If you're a part of a small retailer, then the owner of the company may be responsible for inventory management, but as a business grows, it's preferable to have a dedicated inventory manager. This may be a part of someone's wider job or may even evolve into a team of specialists. Regardless of size, make sure that the person in charge of the inventory is well-equipped with the skills, software, and knowledge to do a good job. If any of these are missing, then you can expect mistakes to be made.
How do you know if your inventory is being mismanaged?
There are a few signs that will tell you that your inventory isn't being managed correctly. This may be an undersold inventory that's sitting in storage, or may be that inventory is rising significantly higher than the level of sales you're experiencing. The most obvious is when you're regularly running out of stock of valuable items, which is resulting in a loss of profit. The reason for this happening may be a combination of the necessary tools to do the job mentioned in the last section, or perhaps that the manager doesn't have the time to do everything required of them. You may need to give them more time or hire an additional person to help.
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