Inventory management is a core business function which is responsible for all decisions about all goods and materials in an organization. Effective inventory management involves ensuring that policies, activities and procedures are in place to make sure the correct amount of each item is held in stock at any time. Let’s discuss four proven ways to streamline your inventory management using today’s best practices.
Reducing Forecasting Errors
There is no magic formula for eliminating forecasting errors. However, we can provide some guidelines to helping decrease such errors.
Combining multiple methods into forecasting can help decrease errors. There can be many factors that affect forecast data, such as your own historical data, forecasts adjusted from the sales team and forecasts from existing customers. Taking an average of these multiple methods and sources can lead to improved forecasting accuracy.
Sales and Operations Planning
Sales and Operations Planning (S&OP) is an aggregate planning process that determines the resource capacity a business will need to meet its demand in the medium term – approximately 6 to 12 months in the future. S&OP is the synergy between a cross functional team instead of independent departments sharing information. This synergy is a process whereby a business begins with a standard baseline forecast using statistical methods. The sales team then makes adjustments to the forecast reflecting the sales strategy. The manufacturing and supply planning team then adjust the forecast to reflect potential issues. Finally, a meeting between the cross-functional team reaches an agreement regarding any remaining supply and demand issues. This method encompasses various factors to be incorporated to enhance the efficiency of inventory management.
Choosing the Best Forecasting Model
Many sophisticated forecasting models have not been measured extensively in implementation. Simple methods generally yield better results.
Create a Storage Policy
Creating a storage policy is strategically advantageous. There are generally three types of storage policies businesses’s can adopt. The first is random storage, the second is dedicated storage and the third is class-based storage.
Random storage, as the name suggests, involves inventory being stored anywhere. This policy can enable space to be utilized fully, although it does create some efficiency issues. This inefficiency leads to poor accuracy of inventory as storage locations will be randomized.
Dedicated storage is rather common, and involves different types of inventory stored in dedicated areas. This policy helps with inventory records and thus inventory accuracy. One disadvantage is that order picking time is usually compromised where the inventory must travel through the warehouse.
Class-based storage is where high turnover inventory is stored near the front part of the warehouse. This creates efficiency as staff do not need to walk very far to retrieve items located there. This policy also helps with the accuracy of inventory records because popular items are stored in fixed locations at the front.
When streamlining your inventory management, it is essential to use policies that are appropriate to your business model, and tailor to your approach to your business’ specific needs and inventory management goals.