Successful inventory management can help you and your company avoid problems such as customers enquiring about an item that is not in stock or products expiring. Good inventory management is becoming increasingly important in a modern world where customers expect their orders to be delivered promptly. This is why we've compiled a short guide to inventory management.
Inventory management - explained
Inventory management describes the storing, sourcing, and using of your business inventory. This can include managing raw materials, warehousing or tracking your inventory. The overarching aim of a dedicated inventory management system is to always have the right stock, in the right place, at the right time, at the right quantity. If you have a complicated supply chain management system, which is often the case for global companies, inventory management is an even bigger challenge.
We want to introduce you to the two main inventory management systems:
MRP (Materials Requirement Planning)
- This system uses sales forecasts to manage inventory. If you are eg producing your product, you would use sales forecasts to identify the correct amounts of materials you need to keep in stock. This helps avoid a situation where orders cannot be fulfilled because of a material shortage. This method, of course, relies on having correct sales data at hand.
JIT (Just-In-Time Inventory Management)
- This method is built on the idea of businesses only keeping the inventory necessary to make or sell their products. As a result, insurance and storage costs are lower. However, there of course are some risks - if eg the demand for a product was to rise unexpectedly, you may not be able to produce or provide your product on time. A lack of excess inventory does also mean great reliance on every single supply chain working smoothly.
There of course are other options for inventory management (eg perpetual inventory management, economic order quantity (EOQ), bulk shipments, dropshipping, etc).
How can successful inventory management help my business?
The positive effects of effective inventory management techniques are diverse. It will help you avoid disappointing customers, having to spend valuable time dealing with errors in supply chains, and issues with inventory shrinkage. An effective approach to managing your inventory will contribute to your business's efficiency and ultimately success. Inventory costs will be lower if the management is done well - reduced wastage and write-offs will lead to a better bottom line in your organization. Issues with inventory are also likely to lead to frustrated customers and thereby decrease your retention rates.
Examples of inventory management strategies
Inventory management software
Good inventory management software can help improve efficiency and reduce mistakes by automating inventory management and streamlining your warehousing and shipping processes.
Undertaking regular audits can help you keep on top of how much stock your company has - this will keep the number of lost, damaged, or stolen items low.
Item-level tagging (RFID)
Item-level tagging (RFID) is a tool to help identify how much inventory you have on the floor, how much is available for re-stocking purposes, and which categories need to be restocked. This will save time for your staff.
Improved return management systems
Handling returns is a key part of managing inventory. If you manage your returns well, customers will be less frustrated and returned products don't simply have to be a write-off. Some inventory management software can help streamline your return process.
Insight into customer behavior
Keep an eye on information like how often you’re restocking certain items - this can help you stay ahead of eg sudden increases in demand.