Did you know that almost 60% of companies believe inventory management gives them an edge on the competition? Not only that, but 70% of industry pros also think that inventory control is the key to providing top-notch customer service.
How does this apply to you? Let’s face it: your inventory management strategy can make or break your business. Be sure to observe these best practices for small business inventory management!
Intro to Inventory Management
Are you sick and tired of Googling “how to keep track of inventory?” If so, then you might want to take a look at inventory management. Allow us to enlighten you.
To put it simply, inventory management is one of the most important parts of the supply chain system. As a matter of fact, inventory control actually includes everyday tasks like tracking and stocking inventory in your warehouse.
In a nutshell, the entire point of inventory management programs is to know exactly where your inventory is at all times of the day. On top of that, you have to figure out how much inventory you have so that you know what to order next time as well.
Want to know a secret? To increase speed and boost accuracy, some businesses even use a barcode scanner to quickly scan inventory along the way. And get this: unlike an enterprise resource planning system, inventory control systems are all about focusing on a single supply chain procedure.
For those who are unaware, inventory management includes useful software systems like:
- Point of sale
- Channel management
- Shipping transactions
Here’s the best part. With modern inventory control, you can customize your systems to meet your company’s needs too. How can you beat that?
1. ABC Analysis
For starters, let’s talk about a helpful process called ABC analysis. You’re probably thinking, “what does ABC analysis stand for?” We’ll break it down for you below:
- A items
- B items
- C items
As a practical inventory management technique, ABC analysis is all about organizing your products into a ranking of most important to least important inventory.
For instance, A items are often the top-selling, highest quality inventory that needs to be reordered regularly.
Next, there are B items, which include any valuable stock that has medium priority. Not to mention that you’ll usually restock it monthly.
Lastly, C items are less popular items with the lowest priority!
2. Pick and Pack Process
When it comes to keeping track of inventory, the pick and pack process is the ultimate way to go. That’s because it involves a set of tools and procedures for your staff to follow, including strategies to fill orders more efficiently.
Are you scratching your head right now? No worries, it’s not as confusing as it sounds. Take a look at a couple of different types of pick and pack procedures:
- Zone picking
- Wave picking
- Batch picking
- Discrete order picking
Don’t know where to start? Try designing your workspace more strategically by putting your most popular products close to your packing station. Better yet, regularly clean clutter and double-check each order before it’s sent out!
3. Inventory KPIs
Curious about inventory KPIs? We’re here to help. Basically, inventory KPIs are a special way to measure your company’s performance in a certain area for a particular period.
Essentially, they track the amount of time it takes your team to work toward a clear-cut goal. What makes inventory KPIs so important is that they give you specific milestones to meet for each year, quarter, and week.
Plus, they’ll help you make more financially savvy decisions for your organization as well. Here’s what you should consider:
- Fill rate
- Order tracking and status
- Time of cyles
- Inventory Turnover Rate
- Inventory write-down and write-offs
- Inventory carrying price
4. Batch Tracking
Are you familiar with batch tracking yet? Also known as lot tracking, batch tracking is a great way to keep track of your products throughout the distribution process with batch numbers.
What is a batch, you ask? To be clear, a batch involves a certain set of items that were manufactured at the same time with the same stuff. If you want to try it yourself, we highly recommend that you start with an automated system for batch tracking.
Pro tip: automated batch tracking systems are wonderful for giving you quick access to your inventory data, especially when it’s time to recall products!
5. Reorder Point Formula
Ever heard of the reorder point formula? For the uninitiated, reorder point formulas were created to let you know exactly when you need to order additional products.
Luckily for you, this formula will also tell you when you’re too low on a specific item, prompting you to reorder before you run out. Let’s get this straight. You don’t have to get hit with unexpected slumps and market spikes anymore.
All you have to do is use this tried-and-true mathematical equation to help you predict the future of your inventory:
- (Average lead time in days x average daily unit sales x ) + safety stock = reorder point
6. Safety Stock Inventory
What’s the real deal about safety stock inventory? To tell you the truth, safety stock inventory describes any small stash of extra inventory that you may have in case things get tough.
In case you were curious, you could risk any of the following if you don’t have any safety stock inventory on hand:
- Market share loss
- Customer retention loss
- Income loss
Nobody wants that to happen, right? That’s why it’s so vital to keep a small supply of safety stock inventory in your warehouse. Some of the perks of keeping safety stock inventory include:
- Buffer against extended lead times
- Instant compensation for uncertain markets
- Avoiding any stockouts
- Security for times of high demand orders
7. Inventory Turnover Rates
Can we be totally honest with you? Getting to know your company’s inventory turnover rates is the key to managing your items correctly.
Measured by the number of times that you sell your inventory, inventory turnover rates can be used for any amount of time that you want. However, most people measure inventory turnover rates on an annual basis.
That being said, it’s time for you to figure out what your business’ inventory turnover rates are. But don’t fret – below, you’ll find an easy-to-use formula to make your own calculations:
- Cost of sold goods divided by average inventory
Are you inventory turnover rates looking a little slow? Here’s how to boost them:
- Try to distribute your products among different warehouses
- Practice forecasting client demand
- Attempt to liquidate any obsolete products
- Play around with your price strategy
8. Stocktaking Process
Too confused by the stocktaking process? We got your back. By making your inventory counting process faster, you can reduce the risk of your employees making any expensive errors.
Here’s the deal – if you want to experiment with your stocktaking process, then you’ve got to write down all of the rules that your team needs to follow to work at a more efficient pace. And you should also document team inaccuracies and discrepancies to keep your staff on the right track.
Need a push in the right direction? Check out some of our favorite stocktaking procedure tips and tricks below:
- Counting and opening everything in your inventory warehouse
- Knowing exactly how to count your items and keeping track of which items you’re dealing with
- Organizing and cleaning your storage room before staring your stocktake process
- Conducting stocktakes regularly to cut down on poor inventory management habits
9. Inventory Reduction
Here’s the thing. Most companies have a good portion of their capital invested in their inventory. So, that means that the more inventory that you have, the more likely you’ll need to start your inventory reduction procedure.
What’s the point of inventory reduction? It’s simple – to find out how to have the smallest number of products without risking any chance of running out. That way, you’ll be able to easily increase the profitability and growth of your company.
Need a hand? Here are a couple of strategies that will help you cut your inventory stock down in no time:
- Improving your inventory forecast skills
- Eliminating any obsolete stock
- Lowering your team’s lead times
10. Cloud-Based Inventory Management
Have you thought about cloud-based inventory management? As of the most game-changing decisions your company can make, cloud-based inventory management is truly a miracle for the supply chain process.
Unlike physical inventory databases, storing your batch information into a cloud-based system is the best way to pay for services as you go. Not to mention that cloud-based inventory management will be super easy to upgrade when the time comes too.
How does it work? The answer is easy: by paying a small, monthly subscription fee, you’ll be able to sign up for a storage package that works for you. Then, all you have to do is upgrade when your team needs more inventory control assistance!
11. Economic Order Quantity
Also known as EOQ, economic order quantity is another helpful formula that you can use to find out how much inventory you should order. With variables such as demand rate and total production rates, economic order quantities are great for meeting periods of high demand.
What’s the main goal of economic order quantity? Overall, the goal is to cut costs for your business. By helping you order the exact amount of items you need at once, you’ll be able to save of ton of cash on shipping costs as well!
12. Minimum Order Quantity
Ever used the minimum order quantity formula? To keep it simple, the minimum order quantity formula has to do with the smallest number of items that you want to sell to consumers.
And here’s the kicker: if your company isn’t able to buy the minimum order quantity of an item, then chances are that your distributor won’t let you buy it.
For instance, stock items with a heftier price tag usually have a small minimum order quantity compared to more affordable products that are cheaper to produce. Can it possibly get any easier?
13. Just-in-Time Inventory Management
Imagine this: just-in-time inventory management is an ultra-useful strategy that lets you set up raw supplier orders in connection with your production schedule. Want to know the best part?
Surprisingly, just-in-time inventory management is the smartest way to reduce the overall cost of your inventory too. That’s because only ordering what you need will automatically cut down your risk of ending up with “deadstock” products. How cool!
14. Safety Stock Inventory
If you want to learn what safety stock inventory management is, you’ll have to start by taking a good, hard look at any additional inventory you may have. Clearly, this means that your company has been ordering way too many products recently.
How do you remedy this? We’ll show you the way. By using the safety stock inventory method, you’ll be able to avoid stockouts caused by poor customer forecasting predictions!
15. LIFO and FIFO
You might be wondering: what on earth are LIFO and FIFO? While FIFO means “first in, first out,” LIFO means “last in, first out.” Used to find out inventory costs, FIFO suggests you sell older products first to keep it fresh.
Meanwhile, LIFO recommends that you sell your newest inventory first to keep it from expiring. Not sure how to manage inventory? Eliminate hand written orders or manual order entry with inventory management now!
Need Help With Small Business Inventory Management?
Need help with small business inventory management? Don’t worry, you’re not alone. From ABC analysis to LIFO and FIFO, we’ve got you covered. The rest should be a breeze! Want to learn more business news? Don’t hesitate to check out our blog today!