Is your small business filled to the gills with inventory? Or is it always running out of your best-selling products?
Inventory management techniques can help solve both of these problems, and can even help boost sales, meet customer demand, and reduce stress. In this article, we’ll discuss some of the best inventory management methods, as well as provide some tips for how to maintain efficiency, reduce inventory costs, and stay agile in an ever-changing market.
What is Inventory Control?
Effective inventory control is the bedrock of successful business operations, ensuring optimal supply levels, cost reduction, customer satisfaction, informed decision-making, and risk mitigation.
At its center, inventory control encompasses key principles such as demand forecasting, warehouse flow, and stock rotation.
The core tenets of inventory include:
- Monitoring inventory levels – Recognize products in demand and set up your systems around the reorder points, consumption rates, and lead times associated with those products.
- Maintain safety stock – Mitigate the risk of stockouts by maintaining surplus, or safety, stock as a buffer for demand.
- Streamline the reordering process – Use automation and inventory software to buy stock once you hit the reorder point to maintain the right inventory level and meet demand.
Benefits of Inventory Management
Implementing an inventory management technique can bring about a lot of benefits, both for your workflow and your customers:
- Reduced time taking stock or inventory
- No lost sales due to out-of-stock items
- Access to historical sales data
- Faster checkouts for customers
- Time, money, and confidence to pursue additional revenue streams
Mastering Inventory Management Techniques
Businesses can optimize their processes and reduce costs by mastering inventory control techniques such as:
- Perpetual Inventory System
- Lean Manufacturing and Just In Time (JIT)
- ABC Analysis
- Vendor Managed Inventory (VMI)
- Barcode/RFID Systems
- Economic Order Quantity
- Batch Tracking
The Perpetual Inventory System
This inventory strategy is a computerized method that maintains a continuous record of inventory levels, updating electronic records in real-time as products are purchased and sold.
This system enhances accuracy through ongoing updates and precise inventory records, leading to improved cost flow assumptions, decreased inventory costs, and enhanced decision-making capabilities. Implementing perpetual inventory management can greatly benefit businesses in maintaining an efficient and accurate inventory process.
Periodic vs. Perpetual Inventory Systems: Which is Better?
The periodic inventory system is a system in which inventory records are updated at specific intervals, whereas the perpetual inventory system maintains a continuous and up-to-date record of the quantity and cost of each inventory item.
The perpetual inventory system is most appropriate for businesses with significant inventory volumes that require precise and real-time stock-level monitoring.
Lean Manufacturing and Just In Time (JIT)
Lean Manufacturing and Just In Time (JIT) are two inventory management techniques that serve to minimize waste, enhance cash flow, increase flexibility, and optimize human resources.
However, organizations may encounter various challenges when integrating Lean Manufacturing and JIT, such as heavy reliance on suppliers for punctual deliveries, employee hesitance in embracing new procedures, and the need for continuous training and development of personnel.
ABC Analysis for Inventory Prioritization
ABC Analysis contributes to inventory management by categorizing inventory items into three classifications—A, B, and C—based on their value and importance to the business. This categorization helps prioritize resources more effectively and optimizes inventory efforts by focusing on items that require more attention and allocating resources appropriately.
Vendor Managed Inventory (VMI)
Vendor Managed Inventory (VMI) is a method of inventory management that takes some of the weight off of you as the supplier, transferring responsibility to the vendor. This method can enhance inventory accuracy and forecasting, reduce overhead, improve in-stock performance, and elevate your cash flow.
However, you need to have a thorough consignment inventory agreement with your vendor. This formal arrangement outlines the relationship terms and allocates inventory management rights and responsibilities.
Barcode and RFID Systems
Using barcodes or RFID tags for inventory management is a surefire way to accurately track how much of each product you have in stock. Plus, barcoding items can speed up the checkout process, which in turn improves customer satisfaction.
In addition, barcode systems offer several benefits:
- Facilitate rapid access to current inventory information
- Enable precise tracking of inventory levels
- Contribute to decreased unnecessary expenditure on inventory products
Economic Order Quantity (EOQ) Methodology
EOQ is a calculation used to determine the most efficient order size for a company’s inventory, aiming to minimize costs related to inventory, including holding costs, shortage costs, and order costs.
A higher turnover ratio signifies adept inventory management and robust sales, while a lower ratio may indicate procurement challenges or slow sales, which can lead to the risks associated with excessive or insufficient stock.
Batch Tracking for Quality Control
Batch tracking, also referred to as lot tracking, is a method employed in inventory management for the purpose of categorizing similar production characteristics. It contributes to quality control by facilitating:
- Product quality assurance
- Regulatory compliance
- Expiry date tracking
- Recall management
- Maintenance of high-quality goods
Best Practices for Optimizing Inventory Control
As you start to understand the best kind of inventory management process that works for your business, you can expand your methods for inventory control. To really fine-tune your inventory management systems, you’ll want to adopt the following best practices.
Leverage Inventory Management Software Solutions
Using Inventory management software facilitates real-time tracking, allowing you to focus on the day-to-day of your business. Your inventory software can help you determine proper safety stock levels and keep the reordering process free of hiccups.
Key features to take into account when selecting inventory software include:
- Real-time inventory tracking
- Barcoding and scanning capabilities
- Advanced reporting and analytics
- Integration with other systems
- Mobile accessibility
- Centralized inventory management
- Robust data security and backup protocols
To choose the right inventory management system for your business, ask yourself the questions in this article.
Mobile Inventory Management
For small businesses, mobile inventory management can be a game-changer. These softwares use smartphones and other handheld devices to give you flexibility in your storefront or warehouse, while also keeping your finger on the pulse of your business.
Some of the top mobile inventory management apps or software include TradeGecko, ASAP Systems, QuickBooks Commerce, and Square for Retail.
Synchronizing with Supply Chain Partners
If reducing lead times and decreasing occurrences of stockouts is your objective, you’ll need to align production schedules with customer demands,
Aligning inventory control with supply chain partners can optimize inventory levels, mitigate stockouts, and decrease carrying costs related to surplus inventory, ultimately leading to a reduction in storage costs.
Working with suppliers is key if you’re using raw materials for production, as the lack of supplies means a lack of product, which can really stall your business.
Re-evaluate Your Inventory Policies
As the market changes, so too will the demand for your products. One month you might require a massive safety stock of a popular item, and by the next month, the demand has died out. To make sure your inventory system is running smoothly, always re-evaluate and adjust your inventory policies to match customer demand. Remaining agile is key for effective inventory management.
Proper Inventory Storage
Effective inventory storage necessitates ample storage space and the appropriate working space for staff.
An effectively planned inventory storage layout has the potential to minimize transportation costs, improve order-picking accuracy, and ultimately boost productivity for the organization.
Choosing the right storage solution for your business will greatly impact the efficiency of your inventory practices.
Improve Inventory Management Efficiency with Proper Storage
Whether you’re a small brick-and-mortar business or a mid-sized e-commerce storefront, it’s important to choose the right inventory management system for your stock. With the proper system in place, you can reduce inventory costs, ensure a faster workflow, and achieve higher profits.
A key factor of proper inventory management is proper storage for your products. The success of your strategy depends on having safe stock areas, good illumination, and sufficient space for all the inventory.
For many small business owners, their home (or the storefront itself) doubles as an inventory storage space–which isn’t always the most efficient method. If you lack the proper space for all your inventory, consider renting a new warehouse or a suitable storage unit. There are even budget-friendly options available, such as the local storage units available on Neighbor’s peer-to-peer storage marketplace. These locations are safe, clean, and accessible, so you can focus on growing your business, not worrying about where you’ll keep your inventory.
