Inventory control is the process of keeping track of inventory stock and monitoring the company’s stock levels across various platforms and locations. Getting inventory control right can save you money, increase cashflow and improve your competitive advantage.
The following five inventory control practices can help streamline your business and save you money:
Set par levels
Holding inventory stock ties up cash, therefore effective inventory control aims to minimise the cost of holding stock while ensuring a business has enough on hand inventory stock to meet customer demand.
Setting par levels or the minimum on-hand quantities of inventory stock for your business helps you to reduce the risk of overstocking while helping to avoid stock outs. Holding excess inventory stock ties up capital and can lead to inventory waste, while understocking leads to lost sales, cancelled orders and potentially dissatisfied customers.
By setting par levels you know it’s time to order more inventory stock when it dips below those pre-set levels. Minimum stock levels will vary by product and should be based on how quickly the product sells and how long it takes to get it back in stock.
Conditions can change over time, so monitor par levels a few times throughout the business year to ensure they still make sense and to adjust up or down accordingly.
Prioritise with ABC
An ABC analysis of inventory derives from the Pareto 20/80 rule that suggests 20 percent of inventory accounts for 80 percent of cost. ABC calculates annual demand multiplied by the item cost per unit. The results are categorised into three cost levels, from the most to the least valuable. Use the ABC classification to make your inventory work for you.
A component of successful inventory control is the ability to adapt quickly. Whether this is the need to return slow-selling stock, quickly restock fast selling items or troubleshoot manufacturing issues, a strong relationship with your suppliers is crucial to guarantee they are willing to work with you to resolve issues.
You can build a win-win relationship with your supplier. Effective relationships require clear, proactive two-way communication. Let suppliers know when you are expecting an increase in sales to allow them time to adjust production. Have them notify you know if a product is running behind schedule so you can halt promotions or consider a temporary substitute.
Regular reconciliation is vital and doesn’t mean you need to conduct regular physical stock counts. Cloud-based software will provide you with real-time inventory data, it’s important however, to ensure that reports and physical stock numbers match up.
Cycle counting allows you to spread reconciliation throughout the year by checking a different product on a rotating schedule, daily, weekly, or monthly counting higher-value items more frequently. For problematic or fast-moving products, spot checking by counting and comparing physical numbers to reported quantities can be undertaken supplemental to cycle counting and physical annual inventory counts.
Have a contingency plan
A significant part of good inventory control comes down to how accurately you can predict demand, which is incredibly hard with all the variables involved. However, with the right tools and the right approach you can improve forecast accuracy, factoring in areas such as previous years’ sales for the same time period, current market trends, seasonality, upcoming promotions and guaranteed sales from contracts and subscriptions.
Unfortunately, even the best inventory control strategies and techniques won’t always protect against the unexpected or prevent the occasional problem. Any number of issues can take you by surprise — an unexpected spike in sales, miscalculations of inventory needs, a lack of funds to pay for inventory stock, suppliers running out of stock or discontinuing a product without warning.
By preparing for any of these eventualities before they happen, you can avoid other, much larger problems that could impact your business. Develop a plan detailing how will you react when these issues arise and what you can do to mitigate the problems.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.