Effective inventory management benefits from having a clearly defined process. But good inventory management can also be enhanced by the implementation of good inventory management software.
But before diving into what that means for your business, what exactly is effective inventory management?
What is Effective Inventory Management?
Inventory management is the practice of successfully charting and tracking your business’s inventory. At its best, good inventory management has the ability to:
- Improve inventory levels
- Increase warehouse productivity
- Maximize profits
Good inventory management is critical for a successful business. But a surprising number of businesses struggle to establish good inventory levels. Often businesses find their stock levels are insufficient to match supply demand. And while that saves money since there’s no excess stock, it’s also a guaranteed way to drive customers elsewhere.
Other businesses anticipating this possibility opt for the other extreme, investing in supply that exceeds demand. On paper, this might look like good inventory management since there is now always available stock. But it also costs money the business may not have with no guarantee of recouping the expense in sales.
Effective inventory management prevents these extremes and successfully navigates a middle ground. With thoughtful work and constructive planning, it’s possible to establish an inventory management system that caters to the demand of your business.
What are the Requirements for Effective Inventory Management?
There are various requirements for effective inventory management. While this list won’t be comprehensive, it strives to offer as much guidance as possible towards best practices for your business.
1. Prioritize Your Inventory
The first step in managing your inventory is to establish which items of stock are integral to the successful operation of your business and which are causing it to lose money or otherwise underperform.
Expert advice suggests that when stocking inventory, you should rank items on a lettered scale from A to B to C, where stock filed under A is expensive and inessential, and C gets allocated to stock that is inexpensive and sells quickly. B is for all of the middle performing stocks.
2. Track Product Information
The next trick for managing an effective inventory is to keep detailed records of all items in your inventory at any given moment. The information in these inventory records should include:
- Barcode information
- Origin Country
- Lot number
Recording and paying attention to item costs over time is another way to manage your inventory effectively.
3. Regularly Audit Your Inventory
How often you audit your inventory is negotiable. Some businesses opt for an in-depth annual audit, while others use a week-to-week auditing model. Still, other businesses audit by the month, and yet others use a combination of all of these.
To manage your inventory with efficiency, it doesn’t matter how regularly you choose to audit your inventory. What matters is that you audit it and do so with a regularity that works for you and your business.
4. Practice the 80/20 Inventory Rule
When you are trying to achieve good inventory levels, the rule of thumb is that 80% of the profit you make comes from 20% of the stock you carry.
For effective inventory management, you want to know that 20% well. Prioritize it highly when assessing stock value and give special attention to how it performs when you audit your inventory.
5. Develop a Consistent Approach for Receiving and Handling Stock
Another tip to help manage your inventory is to have a uniform process for handling stock. While this may seem obvious, it’s surprising how quickly discrepancies develop when employees have an individualized approach to receiving and handling stock.
At worst, it creates breaks in the supply chain and inventory levels that don’t balance when neither you nor other employees are certain what came in or where it went. That makes it vital that you develop a process that has everyone receiving stock the same way.
How you receive stock varies, but you want to ensure:
- Incoming stock is verified
- Stock is received and unpacked simultaneously
- Number of incoming goods tallied with order numbers
- Everything is accurately counted and stored
Why Use an Effective Inventory Management System?
Now that you’re well underway to developing a more effective inventory management system, you may begin to wonder why it’s so important. A good inventory management system helps you:
- Track inventory levels
- Gauge what sells
- Reassess the importance of existing stock
That being the case, here are more ways to manage your inventory.
6. Track Sales
Tracking sales is another seemingly obvious trick that can help manage inventory. As you track sales, look for things like:
- Seasonal drop-offs/boosts in popularity
- Days when the stock sells more than others
- Items that invariably sell together
Remembering that good inventory management isn’t only about totals will help you optimize your inventory levels, so they reflect the trends and patterns of your business experiences.
7. Cultivate an Active and Involved Working Relationship with your Suppliers
Suppliers are integral to sustaining supply chains. To that end, keeping an open line of communication going between your business and your supplier is vital if you want to manage inventory effectively.
A supplier you do regular business with may preemptively notify you when a popular item comes back in stock or, conversely, warn you when something won’t be available for a while.
And increasingly, as customers strive to buy locally, suppliers can be an excellent way to source local produce.
8. Integrate Mobile Devices Where Possible
Not only do you want your inventory management to be effective, but you also want your sales and stock tracking to be efficient. With that in mind, mobile devices can be a tremendous asset.
Train employees to work with devices like iPads and barcode scanners to keep them moving and on top of everything from financial records to stock-taking. Topshelf by Scout is an effective mobile inventory management solution that will help to increase your warehouse productivity and efficiency.
This has the added benefit of reducing your business’s paper consumption and can even save you time in the long run. But you have to remember to keep charging stations available throughout the day and implement sufficient security measures to discourage theft.
9. Develop a Warehouse Plan that Prioritizes Stock
Developing a warehouse plan that considers the priority level of certain stocks helps to ensure that you always have the right products on hand. We’ve talked about prioritizing inventory when doing an inventory assessment, but that has even wider applicability.
The idea is that fast-selling, high-priority items are at the front of your warehouse, where they are easily and readily accessible. Whereas slower-selling stock, which you are less likely to need access to, can be situated further back in the warehouse.
It’s a simple system, but it dramatically improves inventory management.
10. Ensure Low-Stock Alerts are In Use and Maintain Reorder Quantities
While you’re categorizing items by priority and reorganizing warehouses, something else to consider is whether the current inventory levels make sense.
Once you’ve determined inventory levels do make sense, it’s advisable to set low-stock alerts in place for more effective management of your inventory. That will ensure you never run out of stock without incurring the expense of overstocking, as discussed earlier.
And, while you’re implementing those low-stock alerts, clearly delineate who is responsible for responding to them and making the new stock order.
What are the Three Major Inventory Management Techniques?
There are various ways to manage inventory, but some have more popularity than others. The three most prevalent are:
- Push system for inventory management
- Pull system for managing inventory
- Just-in-time inventory management system
In the push system, inventory travels from supplier to business warehouse, which pushes supply onto the business anticipating falling inventory levels. For it to be an effective inventory management system, it relies on employees having detailed sales forecasts for their stock.
Conversely, the pull system relies on stocking an item as and when a customer asks for it. Rather than traveling down the supply chain, goods travel up it. This works effectively as a form of inventory management for low-demand or expensive items. However, it’s unusual for a business to apply the pull system across the board.
The Just-in-time system relies on ordering supply “just in time” to meet a customer’s demand. For this kind of inventory management to be effective, it is dependent on open communication between suppliers, vendors, and third-party involvement. Otherwise, there’s a risk the customer’s needs can’t or won’t be met in a timely fashion.
Whatever inventory management system you opt for, there are still things you can do to enhance the efficacy of your inventory levels and management.
11. Use Cloud-Based Software
For best practice inventory management, a cloud-based software system can transform your inventory. It offers real-time analytical information that helps you make more informed decisions faster and with more information available to you.
12. Use Inventory Management Software
Cloud-based software isn’t your only option, though. Inventory management software like Scout helps give visibility and accuracy to your inventory management.
What’s more, a good software inventory movement system integrates with your existing software for smooth and easy running. The main difference is that your employees are better-informed, and the best practices employed have varied to reflect that.
13. Monitor All Inventory Aspects and Levels
The other benefit of cloud-based software and inventory management software is that it simplifies your ability to monitor and assess stock. As a result, you’ll have a heightened sense of what sells, what doesn’t, and why.
That, in turn, can help you more accurately judge what your inventory needs to keep your business operating as it should.
14. Order Your Own Restocks
Some vendors give businesses the option to do the reorders for them. On paper, this looks as though it should save time. But vendors have a less thorough grasp of your inventory levels and requirements.
For best practice and more effective inventory management, do your own restocking orders. And if you can’t do them, task an employee with regularly reordering inventory when needed.
15. Plan for the Future
Finally, whatever inventory management approach you take, you must plan for the future. Businesses are naturally forward-looking, and the only way to effectively manage your inventory is to anticipate the needs and demands of your customers.
More than that, you must allow for the possibility of business growth and prepare accordingly. Otherwise, you will find it difficult to adapt when expansion becomes possible or even necessary.
Each of these tips can be integral to the success of your warehouse and inventory management system. By acting on each of them and finding what works best for your warehouse, you’ll soon have a more effective warehouse. Keep your business running smoothly and your inventory optimized; it will always be worth it.