Inventory Streamlining Tips

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With inventory being one of the major assets of any business, proper management is crucial in terms of its top line, bottom line and brand image. Streamlining inventory management is of utmost importance in achieving the goals and objectives of a business. The basic questions that need to be looked at in stock management are:

  • What is the present stock position/value?
  • Which are the fast moving items of stock?
  • Which are the items that are nearing obsolescence and need to be cleared?
  • Which are the items that have fallen below the threshold levels and need reordering?

Let’s look at some of the major steps that must be taken in order to streamline inventory management so that the answers to these questions are available in real-time.

1. Automation

Deployment of a good inventory management software would serve a variety of purposes as detailed below:

  • To know the real-time stock position
  • To maintain an optimum level of stock and thereby reduce carrying costs and opportunity costs
  • To receive alerts when the levels of stock fall below the threshold level
  • To track the inward and outward movement of stock
  • To analyze the ageing pattern and therefore prevent loss due to obsolescence
  • To carry out proper inventory forecasting

2. ABC Analysis

The Pareto Principle, also known as the 80-20 rule, can be applied to stock management. Normally, 20% of the products would account for 80% of sales. Identification of these products and categorizing them as A – highest contributor to sales/profit margin, B – significant contribution to sales/profit margin and C – lowest contribution to sales/profit margin, would enable the company to maintain the appropriate levels of inventory of each category. This would also help to ensure against loss of business due to non-availability of stock.

3. Forecasting at the appropriate level

The crucial factor in forecasting is the proper understanding of the future requirements of inventory. This calls for frequent liaison with the marketing and the production departments. Other factors to be considered while making inventory forecasts are:

  • Seasonality of inventory: If inventory is only available during a particular season, not all year round, the procurement has to be done seasonally, to prevent loss of business
  • Likely price fluctuations: While making inventory forecasts the likely increase/decrease of prices needs to be factored in appropriately
  • Lead Period: The number of days required for an order to be delivered is a very important factor to be considered while forecasting inventory requirements

4. Safety stock

The level of safety stock to be maintained may be decided based on the ABC analysis of inventory. This helps to mitigate the risk of stock-outs of the 20% of inventory that contribute to 80% of sales/profit margin. The level of safety stocks may also be subjected to periodic review so that the levels remain realistic.

5. Mobile/email alerts

The inventory management software must be capable of triggering an alert in the event of any exceptional conditions. This could include items of inventory falling below the threshold level or stock nearing obsolescence or delay in delivery of orders placed.

6. Exception reports

The software must be capable of generating exception reports with respect to any deviations observed from the values envisaged. These reports need to be scrutinized at a managerial level employee on a daily basis and remedial action should be initiated immediately.

The above action points are just illustrative and not exhaustive. Lastly, stock management would be of high standards only if, there is a strong co-ordination between the marketing, sales, purchasing, and finance and stock management department of any business.

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Melanie - Unleashed Software

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.

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