Not only will effective inventory control save you money, but it can also improve cash flow in other ways. It’s important to factor inventory stock into your cashflow management because it represents money spent that won’t generate cash until your inventory has been sold.
The longer inventory sits on your shelves, the more it costs, tying up cash reserves and occupying valuable space. Implementing inventory control techniques will improve inventory turns and save you valuable time and money.
When you have robust inventory control, you will know exactly what and exactly how much inventory stock is on hand. On-hand stock levels affect sales by dictating how much you have available to sell and how much stock you need to purchase.
There are many inventory control practices you can leverage to save money and increase cashflow. Start with the seven key areas listed below.
Set minimum stock levels
Improve inventory control by setting minimum levels for each of those inventory items that must always be on hand. When your inventory stock dips below these predetermined levels, you know it is time to order more.
By holding the bare minimum stock required to meet sales demand you can save money through the reduction of holding costs such as storage, insurance and handling expenses.
Minimum stock levels will vary by product based on how quickly the item sells, and the lead time required to get products back in stock. Monitor minimum stock levels a few times a year to ensure quantities are still relevant and adjust up or down to match current demand.
A significant way of optimising inventory control is through the ability to predict demand as accurately as possible. While many variables make accurate forecasting difficult, there are a few areas to consider when projecting future sales. These include, but are not limited to, current market trends, historic sales during the same period in previous years, seasonality, current and projected growth and the general economic climate.
A good inventory information system will allow you to capture sales history that will help to establish forecasts and future sales by analysing this data to identify patterns and trends.
Accurate forecasting saves money by reducing the risk of waste, spoilage and excess or obsolete stock that ties up working capital, compounds holding costs and takes up valuable storage space that could be used for more popular, fast selling items.
Supply chain management
By streamlining the entire supply chain, businesses can reduce inventory stock, improve time to market, reduce cycle times, free-up cashflow and increase profits. Importantly optimisation of the entire supply chain results in clearly visible customer service performance and a reduction in all forms of inventory.
Whether you need to return slow-moving stock, troubleshoot manufacturing issues, or quickly restock a fast selling item, it’s important to have a good relationship with your suppliers. Effective relationships are about good communication that provides room for give-and-take facilitating quick response to supply problems.
For example, notifying suppliers when you expect an increase in sales allows them time to adjust production to meet the increased demand. Likewise, suppliers letting you know when a product is behind schedule or running low in stock allows you to put a hold on advertising and promotions or even to look for a temporary substitute.
Production scheduling is possibly one of the least understood aspects of manufacturing and often results is product flow imbalances, causing bottlenecks, long cycle times and erratic output, all of which can reduce customer service.
By measuring production efficiency and order-to-delivery effectiveness, manufacturers can save money and achieve greater value from working capital.
With proper planning and scheduling, you can make the most efficient use of your physical infrastructure and equipment. Spreading out the workload to avoid long periods of heavy use will improve the longevity of equipment and save money over the long-term.
Contemporary customers demand more than just the lowest price overall. Short lead times, quality products, on-time delivery and great customer service are as equally important to today’s customers as a good price is. The consequence of non-compliance to these demands can easily result in lost business, costing you money and potentially leading to an excess of inventory over the course of the business year.
Flexible manufacturing is the ability to produce goods that are readily adaptable to changes in both in type and quantity, of the product being manufactured. Manufacturers need a level of flexibility within their operations to improve customer responsiveness and quickly respond to mutable customer demand.
Reducing inventory stock
There are many ways to save money by reducing inventory stock. From optimising order sizes and purchase frequency to getting rid of obsolete items.
Obsolete inventory is the in-stock goods that no longer have any customer demand, they typically occur when new product launches release newer versions of the same item, such as smartphones, or simply because customer demand patterns change due to unforeseen market shifts.
Businesses should regularly monitor the product life cycles of every unique item to track demand pattern changes over time. Solid inventory control helps you avoids unnecessary spoilage, and dead stock that is out of season, has gone out of style, or otherwise become irrelevant. Avoiding dead, obsolete or expired stock, once again, will save you money.
A regular audit of your inventory stock and overall operations is crucial to optimising inventory control and reducing costs. Spot checking inventory throughout the year to match inventory reports with actual inventory stock allows you to identify and manage discrepancies more regularly than a single year-end stocktake.
Even if you are using inventory control software and automated tracking it is prudent to supplement this with a physical spot check, comparing the count to the inventory records, particularly with regards to problematic or fast-moving goods.
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.