Imagine walking into your favorite store to buy a product you’ve been waiting for, only to discover it’s out of stock.
This situation frustrates both customers and business owners. The customer doesn’t get the product, and the business doesn’t make a sale.
If you run an inventory-based business and have trouble managing stock, the good news is that there are ways to improve the process. Cut unnecessary costs, maintain stock levels, and please customers with these inventory management techniques.
The importance of efficient inventory management
With the demands of running a business, tracking every item might feel like just another task on the to-do list. But optimizing inventory management is a powerful way to elevate your business. It’s about staying organized and finding opportunities to improve.
Here are some of the key benefits of streamlining inventory management:
- Cost reduction: Knowing what products you need and ordering accordingly avoids overstocking, saving on storage costs. It also frees up valuable storage space and financial resources to invest in other business areas.
- Enhanced customer satisfaction: Carefully maintaining stock levels lets you fulfill customer orders faster because products are always on hand. This helps you deliver prompt service, enhancing customer satisfaction and loyalty.
- Reduced waste: Techniques like just-in-time (JIT) inventory cut down on waste by ordering stock only when needed. Matching production or reordering with demand avoids holding too much inventory, reducing waste from expiration and obsolescence. This method also uses resources more efficiently, saving storage space and lowering the risk of value loss.
- Better forecasting: Strong inventory management techniques lead to accurate data collection, helping you better predict demand, anticipate future needs, and avoid running out of stock or overstocking.
Understanding the inventory management process
Managing products, predicting customer needs, and staying organized can be overwhelming. Let’s look at the key components of effective inventory management to make this process smooth and efficient.
Demand forecasting
Demand forecasting analyzes the market and previous sales data to identify what products to have in stock and when, avoiding stockouts and overstocking. Predicting what customers want steadies cash flow and ensures customers find what they need. This inventory management approach uses resources wisely and sets the business up for success.
Inventory tracking
Keep an eye on stock levels with real-time inventory tracking. Monitoring items as they move through the supply chain — from arrival to sale or manufacturing — avoids losses and helps you maintain up-to-date records.
Stock replenishment
Consistent inventory starts with restocking sold items as quickly as possible. This keeps the shelves full for customers. The process involves monitoring stock levels, predicting customer needs, and quickly placing orders with suppliers. Doing this right means you always have what people are looking for, encouraging repeat business.
Order management
To stock the right items and receive them on time, you need an order management system. This involves handling and documenting orders as accurately as possible.
Integrating order processing with inventory control makes it easier to track stock in real time and adjust customer orders accordingly. This also allows you to set reorder points so if you start to run out of a certain item, the system automatically generates purchase orders to replenish it.
Storage and handling
Storing inventory in a safe and accessible way prevents damage and speeds up the picking process. Use proper storage methods like shelves or containers and implement inventory systems to track and find items quickly. Handling and packing inventory carefully also avoids damage during transport and storage, especially for delicate items.
Inventory auditing
Auditing inventory means counting stock and comparing it to recorded amounts to check that everything matches up, both in quantity and quality. This helps spot discrepancies, like missing or extra items, and make adjustments to keep inventory records accurate and up to date.
Top 10 inventory management strategies
Here are some essential inventory management strategies to enhance business operations.
1. ABC analysis
Complete an ABC analysis by categorizing inventory into three groups — A, B, and C — based on value and how often they sell. Class A items are the most valuable and sell the fastest, while Class C items are the least valuable and sell the slowest. This system focuses efforts on the most essential items, giving them the attention they need to drive more sales.
2. JIT inventory
JIT inventory matches raw material orders with production schedules to boost efficiency and cut waste. Order materials only when needed. This inventory strategy requires meticulous planning and a strong understanding of the supply chain to ensure materials are delivered on schedule, but it’s worth it to save on inventory and holding costs.
3. Economic order quantity (EOQ)
EOQ determines how much inventory to order at once. It finds the most cost-efficient point where the combined expenses of placing orders and storing goods are the lowest, considering factors like how much you need, the cost of placing an order, and the cost of storing each unit of inventory. This helps save money and reduce excess stock.
4. Safety stock inventory
Maintaining a safety stock inventory means storing extra stock to protect against increases in demand or supply chain issues. This buffer maintains enough products to meet customer needs, even when things don’t go as planned.
5. First in, first out (FIFO) and last in, first out (LIFO)
In inventory management, FIFO means using or selling the oldest stock first, and LIFO means using or selling the newest stock first. These methods impact accounting and taxes, influencing the cost of goods sold and the value of inventory on financial statements.
Choose one based on your business needs. FIFO is best for products that quickly expire or become obsolete, like food, and while LIFO is more complex, it works well for companies looking to lower their taxable income.
6. Reorder point formula
The reorder point formula determines exactly when to place a new order to avoid running out of stock. This ensures you always have enough products to meet customer demand without shortages.
7. Batch tracking
Keeping a close eye on the production and expiry dates of inventory batches helps products meet quality standards and follow regulations. To make tracking easier, assign lot numbers to a group of products. This helps you check that all products are safe to use so you can deliver them to customers in the best condition.
8. Dropshipping
Dropshipping lets retailers team up with suppliers who ship products directly to customers. Retailers don’t have to hold stock, but they can still offer a wide variety of products. The downside to this strategy is less control over the manufacturing and distribution processes.
9. Consignment inventory
In a consignment inventory setup, a supplier stores products at the buyer’s location, and the buyer only pays for the goods when a customer buys them. This arrangement benefits both parties — the buyer doesn’t have to worry about holding too much inventory or dealing with unsold items, and the supplier gets their products closer to customers without investing in a storefront or eCommerce store, which can increase sales.
10. Perpetual inventory system
Perpetual inventory systems track real-time stock levels using automated software. It updates the records when you sell or move a product, offering an accurate and current view of stock levels. This system improves efficiency, reduces errors, and leads to better inventory management decisions.
Streamline inventory management with Fishbowl
You don’t have to manage inventory alone. Fishbowl’s software solution has all the tools you need to boost accuracy, eliminate manual errors, and gain real-time inventory insights.
Fishbowl offers powerful features to help you master inventory and streamline all processes. Plus, it integrates with QuickBooks for easy accounting.
Manage inventory smoothly and effectively. Book a demo today.