‘Turn your inventory faster than your customers’ – was rightly said by James Sinegal, former founder and CEO of Costco.
If you see the company’s supply chain management, one of the most important elements is inventory management. Without managing your inventory levels, your business operations may get halt.
However, there is always room for improvement, innovation, and optimization. The methods and the frequency of purchase of your products keep fluctuating. You can amplify these changes in your favour by managing inventory regularly.
Explore the best practices of inventory management that might give you food for thought. Let’s dive in –
Pursue a demand-driven inventory management strategy
Most companies usually adopt a cost-driven approach to inventory management rather than driven by demand.
Cost-driven strategies primarily focus on getting inventory through a distribution network and reducing costs. Demand-driven strategy, on the other hand, can offer you many benefits. Aligning inventory with the fact that how and when your customers buy, can give better forecasting accuracy. It can also reduce the possibility of overstocking inventory that sometimes goes to waste. Also, focusing on customers’ demand allows organizations to be more cost-effective.
However, making this switch is not that easy and might not even be fruitful for everyone. If you have decided to pursue this route (demand-driven strategy), it should include investment in forecasting software or inventory optimization software and implementation of supplier management strategies. Also ensure that your system has an application that contains an inventory-target calculation tool.
Optimize your inventory using effective demand planning
Holding inventory is more expensive than you may imagine. For instance, the budget rises up to 60% if the inventory is being held for a year. Therefore, make sure that inventory levels are optimized and can help your organization to avoid incurring this cost in future.
With barcode scanners, you can align your inventory levels with your business needs by focusing on demand planning. Also, Bluetooth barcode scanners are one of the reliable scanners that do not confine you to the table. You can scan the products wherever you go, and the information will automatically be recorded in the central database.
By adopting technology, you can reduce costs and avoid the labour of managing your inventory manually that costs your organization significantly more than its worth.
Review and redesign your inventory processes
‘You don’t know what you don’t know’ – a common saying that rings true in every industry and its applications. The same goes for inventory management, which means that if you do not review your inventory processes regularly, you won’t know if they are working as they should.
The world is changing quickly. From increased globalization to the implication of tariffs between many companies, changes in compliance regulations, varying supply times, and the impact of natural disasters, it’s quite possible that your existing inventory processes may not be adequate for these changes. It might also not adapt to future changes.
Therefore, reviewing your inventory processes can benefit you. If these inventory processes are working effectively, you may discover that changes are necessary to take your business ahead in the competition. You will have the information you need to redesign your inventory processes to meet your current and future needs.
Use the cycle counting method to improve your inventory accuracy
Instead of using the yearly manual inventory counts, you should use cycle counts that can improve a company’s inventory management. The most significant advantage of using this method is that you will get an accurate number of inventories every day. That way, you can improve your customer service, customer satisfaction, and speed to delivery.
Here are a few ways to incorporate cycle counting into your warehouse or distribution centre –
Use automated data collection tools like handheld barcode scanners and RFID readers to scan the products with barcodes. When these tools are integrated into a warehouse management software system, they allow you to count and track your inventory in real-time.
Do small-batch counts instead of counting large batches of products.
Use just-in-time (JIT) inventory management
Just-in-time (JIT) inventory management is well-defined as a management strategy that arranges raw-material orders from suppliers directly with production schedules. This strategy was adopted in 1990s and has helped companies in several ways. Have a look –
With JIT inventory management, there will be no shortage in the material a company needs, which in turn, helps you reducing your holding costs. You can also lower prices across the board and reap savings that you can invest elsewhere, in production or product development, for example.
Using JIT delivery, you can ensure a quick response to the demands of your existing as well as prospective customers
Audit and evaluate the systems you currently have before you buy new software, hardware, or systems
It’s quite tempting to jump on the bandwagon and get a new ERP system, inventory optimization software, or Internet of Things (IoT) sensors for your organization to get real-time tracking and visibility of your products and supplies.
However, you might require to purchase point of sale systems, because it’s possible that systems you have are sufficient, and not have been used in the way they should be. Apparently, with a little change in processes, you can get your desired result with what you have in place already.
Also, you can potentially save your organization hundreds of dollars just by auditing and evaluating your current POS system and other technology.
Invest in a barcode scanning system
Your current systems, hardware, and ways of managing inventory could be improved.
For instance, if you are relying on handling tasks and spreadsheets manually, the improved technology could minimize inventory errors and better equip your employees for success.
Investing in barcode scanners like handheld barcode scanners, or Bluetooth barcode scanners can provide numerous benefits to your organization. You will have more accurate material that can simplify your processes of purchase and database management.
With real-time data about your inventory, you can keep inventories at a constant level and can exclude the problems of material shortages or insufficient storage. You can also reduce costly inventory losses and give your operators immediate control of inventory and shipping from cargo withdrawal to delivery and more.
Developing training and onboarding programs to empower your staff and ensuring that they are knowledgeable
Even if you have the right technology in your business, it’s all for nothing if your employees aren’t trained well. You could experience negative consequences like employee dissatisfaction and unnecessary delays for not providing effective training to both new and current employees of the organization.
With proper training, your employees will know how to use their time effectively and have a thorough understanding of your inventory management processes that should be known by workers on the front lines. Also, by giving your employees the tools and training, you’re actually empowering them in their jobs.
Go easy with your approach
Your organization should understand customers’ value and focus on key processes to increase it continuously. The ultimate goal of the company is to provide satisfaction to the customer by the process of creating an absolute value that has zero waste.
If you are adopting a lean approach to manage your inventories, it can help you to decrease waste (if not eliminate it), increase returns, and give you the ability to be more adaptable with your inventory.
With five different principles, like – value, flow, pull, responsiveness, and perfection, you can develop techniques based on them.
Using a lean inventory management approach in your organization can help you in many ways, take a look –
- Reduction in stock keeping units (SKU) counts and inventory levels
- Increase in the use of standards in processes and materials
- Improving collaborations and a general reduction in the cost of goods sold as compared to companies that do not use lean principles
- Contributing to the bottom line of the organization
Well, the results speak for themselves. Going lean is the way to go!
Use a distributed order management system if your distribution centres (DCs) are experiencing omni channel fulfilment challenges
Distribution centres can sometimes be affected by omni channel fulfilment challenges, and there is only one way to remedy these challenges, i.e., invest in a distributed order management system (DOM).
The main benefit of using the distributed order management system is that it will act as a brain for the complex rules you will need to apply to customer orders and to fulfil them in a way that meets your promises with the customer at optimal cost while adhering to the inventory allocation objectives.
With proper integration, you can also assemble orders from any of your mediums, identify opportunities to cut costs in your fulfilment operations, integrate your internal and external data sources together in one main system, and boosts the allocation of your inventory.
The final note
Now that you know the basic principles of inventory management, it’s the perfect time to start thinking about ways to optimize your inventory management. These tips might help you as you plan your inventory management processes.
Possibly, these inventory management best practices that can help your organization may not apply to all other companies. However, these practices give you good start for boosting inventory management in your organization.