Many business owners know that ordering the right levels of inventory is crucial as it controls costs in addition to acting as a blueprint for a business’s overall health. Here we look at five ways we can help improve your inventory management today.
Break down your inventory into key categories
Breaking down your inventory into key categories that reflect the position of your stock such as safety, replenishment, excess and obsolete makes it easier to track inventory. In doing so businesses can make sound decisions when it comes to these categories. For example, it can help determine the minimum inventory needed to act as a safety net against supply chain problems, ensuring customers are getting what they need. It is also useful for micro managing the amount of inventory required to replenish deliveries as needed in your inventory cycle. By using these categories businesses can identify trends and help avoid backlog of excess or obsolete inventory.
Ensure your business is using the best method to calculate your inventory levels
Is your business using the most effective way to calculate your inventory? There are two common methods, the first is whereby businesses use statistical formulas that use accuracy of sales forecasts, necessary for production lead times, manufacturing schedule adherence and servicing of each item. The second is a rule of thumb method that entails, for example, all products made in factory A need 12 days of safety stock. Although both can work, the latter is prone to some difficulties such as inefficiency. Many efficient operations use a standard statistical formula that can be used by looking at historical data for each product.
Have up to date inventory levels
Business that have checks and balances in place to update their calculations do so periodically to ensure that decisions are based on the most accurate information.
Striking the right balance of inventory-related policies
Having a good strategy in place for making decisions about inventory management is important. For all components of business, such as the supply organization, executives need to come together to have their say in what the fundamental issues are that impact inventory management – from the beginning of the supply chain to the end of the customer offering.
Having optimal frequency for ordering inventory
Effective inventory planning can be affected by several factors. For example, marketing efforts and production amounts based on costs. Using a cross-functional team who have insight into inventory should be setting the production and ordering schedules. By considering all contributing factors and using sales and operations planning processes, a cross-functional team often better inventory management.
These are by no means an exhaustive list, however these five steps can act as a blueprint when assessing your inventory health. In turn you can set your business up for significant opportunities by improving expenses and asset effectiveness and creating potential for capturing missed trends.
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.