Over the last several weeks I’ve answered the following questions:
How do I manage a warehouse?
How do I track inventory in multiple locations?
How do I get the best value for my money with inventory control software?
Now I’m going to take on the biggest question so far: What is the best way to manage inventory?
Oh, what a difficult question this is. Sadly, there is no one-size-fits all answer, but there are a number of criteria you can use to answer this question for your particular needs and situation.
Let’s answer the following questions as stepping stones to answering the big question:
What Do You Value Most?
In other words, what do you want to get out of your inventory? Some companies want more than anything to keep their inventory processes as simple as possible, others want to make them as fast as possible, and still others want to keep the costs low. Your overall goal has a big effect on how you manage inventory.
If you’re interested in simplicity, you may want to stick with Excel or some system that is easy to learn. If you want speed, you should look into an automated system. If you want inexpensive, you need to weigh the costs and benefits of buying a software solution that could increase efficiency but also cost a bit at the start.
What Is Your Budget?
Companies have to work within their budget. Make sure the inventory solution you come up with works with what you have right now. There are plenty of tools to make your inventory management goals come true, but you can’t use them all, nor should you take a trial-and-error approach to finding what will work.
You’ve got to carefully analyze your needs and do an ROI analysis on any potential solution, whether it’s purchasing inventory management software, staying on Excel, or doing something else.
What Do Your Customers Expect?
Inventory management is simply the means of getting products to your customers. When you look at it that way, your customers’ expectations are what determine your method of inventory management.
Do your customers place huge orders for highly technical products and they don’t expect to get them for weeks? Then you can afford to have long lead times on products, store very little in your warehouse, and save money on the space you don’t need. But if your customers expect products to be on the shelf when they’re looking for them, you need to be quicker and more responsive. Your supply chains need to be quick, you must have a safety stock to avoid shortages, and you need to be mindful of seasonal demand trends.
How Large Is Your Company?
Big companies require more complex inventory management tools than small ones. A small business can make do with an Excel inventory management system or even a paper-based system for a number of years. But when they reach a point where they are unable to track all of their products on a spreadsheet and they need more detailed information on sales, orders, and other parts of their inventory, it’s time to move up to a more sophisticated tool: inventory management software.
If your company is growing rapidly, it’s a good idea to get scalable inventory management software, so it can grow with your business and let you purchase and add new tools when you need them, such as ecommerce, shopping carts, advanced manufacturing, barcode scanning, etc.
Which Inventory System Should You Use?
There are four main ways to approach inventory management. I’ve analyzed them all in depth before, so I’ll just mention them briefly again here:
Mix-Max System – When an inventory level falls to a minimum level you reorder so it goes back up to the maximum level.
Two-Bin System – You have a main bin of products that you normally sell from and when it runs out you switch to a backup bin until the main bin is replenished.
ABC Analysis – Organize your products in three buckets: expensive, large ones, moderately expensive medium-sized ones, and inexpensive, small ones.
Order-Cycling System – Periodically do an inventory check (such as once a week) and reorder products that are low.
It All Depends
The best way to manage your inventory depends on the above factors. It’s not a decision that should be made lightly, nor does the one you’ve made have to be permanent. If you’ve tried one system for years, but you’ve either outgrown it or you’ve noticed that it hasn’t produced the results you’ve been looking for, it may be time to try something else.
Come back next week for another answer to a challenging question on inventory management.
How do I manage a warehouse?
How do I track inventory in multiple locations?
How do I get the best value for my money with inventory control software?
Now I’m going to take on the biggest question so far: What is the best way to manage inventory?
Oh, what a difficult question this is. Sadly, there is no one-size-fits all answer, but there are a number of criteria you can use to answer this question for your particular needs and situation.
Let’s answer the following questions as stepping stones to answering the big question:
What Do You Value Most?
In other words, what do you want to get out of your inventory? Some companies want more than anything to keep their inventory processes as simple as possible, others want to make them as fast as possible, and still others want to keep the costs low. Your overall goal has a big effect on how you manage inventory.
If you’re interested in simplicity, you may want to stick with Excel or some system that is easy to learn. If you want speed, you should look into an automated system. If you want inexpensive, you need to weigh the costs and benefits of buying a software solution that could increase efficiency but also cost a bit at the start.
What Is Your Budget?
Companies have to work within their budget. Make sure the inventory solution you come up with works with what you have right now. There are plenty of tools to make your inventory management goals come true, but you can’t use them all, nor should you take a trial-and-error approach to finding what will work.
You’ve got to carefully analyze your needs and do an ROI analysis on any potential solution, whether it’s purchasing inventory management software, staying on Excel, or doing something else.
What Do Your Customers Expect?
Inventory management is simply the means of getting products to your customers. When you look at it that way, your customers’ expectations are what determine your method of inventory management.
Do your customers place huge orders for highly technical products and they don’t expect to get them for weeks? Then you can afford to have long lead times on products, store very little in your warehouse, and save money on the space you don’t need. But if your customers expect products to be on the shelf when they’re looking for them, you need to be quicker and more responsive. Your supply chains need to be quick, you must have a safety stock to avoid shortages, and you need to be mindful of seasonal demand trends.
How Large Is Your Company?
Big companies require more complex inventory management tools than small ones. A small business can make do with an Excel inventory management system or even a paper-based system for a number of years. But when they reach a point where they are unable to track all of their products on a spreadsheet and they need more detailed information on sales, orders, and other parts of their inventory, it’s time to move up to a more sophisticated tool: inventory management software.
If your company is growing rapidly, it’s a good idea to get scalable inventory management software, so it can grow with your business and let you purchase and add new tools when you need them, such as ecommerce, shopping carts, advanced manufacturing, barcode scanning, etc.
Which Inventory System Should You Use?
There are four main ways to approach inventory management. I’ve analyzed them all in depth before, so I’ll just mention them briefly again here:
Mix-Max System – When an inventory level falls to a minimum level you reorder so it goes back up to the maximum level.
Two-Bin System – You have a main bin of products that you normally sell from and when it runs out you switch to a backup bin until the main bin is replenished.
ABC Analysis – Organize your products in three buckets: expensive, large ones, moderately expensive medium-sized ones, and inexpensive, small ones.
Order-Cycling System – Periodically do an inventory check (such as once a week) and reorder products that are low.
It All Depends
The best way to manage your inventory depends on the above factors. It’s not a decision that should be made lightly, nor does the one you’ve made have to be permanent. If you’ve tried one system for years, but you’ve either outgrown it or you’ve noticed that it hasn’t produced the results you’ve been looking for, it may be time to try something else.
Come back next week for another answer to a challenging question on inventory management.