Six Steps to Effective Inventory Management
Effective Inventory Management is about planning and controlling inventory levels so that we have just the right amount of inventory to meet our business needs. A study of good business practices suggests that you should avoid running out of the stocks that sell well at a good profit while at the same time avoiding having too much of the items that are less popular.
This article looks at six steps you can take to optimize and manage your inventory better.
6 Steps to Effective Inventory Management
- Determine the demand for your Product – many companies still base their forecasts on just adding 10% or some arbitrary number to last year’s performance. This may work well enough in a situation where you are a small player in a large market and your strategy is to eat into your competitor’s market share. However, if your product is more of a “dependent type of inventory” this approach may not work very well for you.
- Know what is in your warehouse – In the quest to chase sales, Warehouse chores are often relegated to the back burner. You must cycle-count your stocks regularly to reduce variance.
- Determine which of your products actually make money for you – Sales people often focus on selling the products that are easy to sell. Often these are the low margin high volume items. What about the other items? Why don’t they sell? Find out which of your products are the real money makers. Develop a good set of inventory analytics which give a good view of your business performance. Try Pareto analysis, inventory turnover analysis, and the EOQ model to create the most profitable product mix for your situation.
- Prevent Overstocking – Avoid holding large quantities of inventory. Fashion and tastes change very quickly these days. Encourage your staff to keep a close eye on stock movements and try to have only the quantities in the warehouse that are required for your current needs. Keep you safety stocks as low as possible while keeping the risk of going out of stock also low.
- Prevent Going out of stock – Avoid products and suppliers with very long and unpredictable supply chains. Closely track demand for your product and regularly review your re-order points.
- Get rid of your dead stock – one of the hardest things to do is to get rid of dead stock. There are many reasons why this is so and beyond the scope of this article. The important thing to remember is that you may run out of warehouse space sometime in the future. The best thing to do is to prevent accumulating dead stock in the first place.
Analyzing your inventory data will give you the insights you need to do the above. Since computers and software have become readily available, analyzing your inventory data can be easily done by your staff on a regular basis. With the correct analysis, you should be able to make the correct inventory decisions.
RMP Consultancy regularly conducts public and in-house training seminars in the areas of supply chain management and operations management including basic warehouse management, inventory management and logistics as well as purchasing and procurement management. Send us an email or give us a call and let us help train your staff.
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