Methods worth adopting to better manage inventory

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There are several methods utilized by companies to manage inventory effectively, however initially, the basis to any of these techniques is first to properly know your inventory. Knowing your inventory requires you to know the market and its demands and to know your product (expiratory dates, ordering lead times etc.) – and it is inventory management software that helps you to gain this invaluable knowledge.

Once the market and product is understood, there are certain methods that help you manage inventory efficiently, including:

Just-in-Time (JIT)

This seems to be the most common inventory management technique employed. JIT is essentially the ordering of an item only if it is needed for supply or manufacture, therefore it arrives just-in-time for when it is required. A bonus to this method is lower storage costs as raw product or finished product is less likely to be stored just waiting for the moment if, and when, it is actually needed. Of course, for this technique to work properly and benefit the company, identification and accurate prediction of the requirement of product is essential, as is the commitment of the supplier to provide the item in the exact quantity and at the exact time it is needed. If these things are adhered to, this method of inventory management can work very well.

Learn your ABCs

ABC or Always Better Control is an analysis technique used to understand which products make up the company’s stock and what value these products hold. The stock is divided into 3 categories, these being ‘A’, ‘B’ and ‘C’.

Group ‘A’ incorporates products that hold a great deal of value (approximately 50% of the value of all stock), however may only account for 10-20% of the actual items in the stores. This group is controlled with a great deal of attention and accuracy.

Group ‘B’ refers to items that account for approximately 20-30% of the total items in the stores, and they have a value of about 30% of the total cost of the stock. This group of items is controlled with a reasonable degree of care and attention though not nearly as much as Group ‘A’.

Finally, Group ‘C’ is also known as the ‘residuary category’ and incorporates approximately 70-80% of the total stock, however the net worth of this stock is only about 20% of that in the store. Therefore only a routine proportion of care and attention is taken to control the stock in Group ‘C’.

The goal of utilizing this method of inventory management is to reduce storage costs significantly while maintaining costly items and ensuring they do not expire for example. Essentially the level of control is proportional to the value of the item.

Setting-Up of Stock Levels to Manage Inventory

Making accurate decisions around reasonable stock levels is a key management technique and it acts to support other methods such as JIT and ABC analysis. Once an accurate knowledge of the demand of the product is obtained then it is possible to formulate accurate stock levels.

Stock-levels include the Re-ordering level, the Minimum level, the Maximum level, the Danger level and Economic Order Quantity. Many of these are self-explanatory but the purpose of them all is to ensure that the company maintains a fine balance between the storage of items to avoid undue risk or not fulfilling orders, the cost of storing these items and the associate risk if they do not sell or expire while in the company’s possession.

Smaller Batches

Manufacturing in smaller batches can be a key technique to utilize in inventory management and again, it works hand-in-hand with the previously discussed techniques.

Manufacturing in smaller batches negates the need to store a large quantity of raw products and also helps with JIT, where suppliers can deliver items in a smaller quantity and more frequently. This technique not only is a benefit to the expiry date of the product, which can be passed straight on to the customer thereby enhancing the product value, but also it has copious benefits to quality control. By manufacturing in smaller batches, the batches can be controlled better (a larger sampling rate) and, if regrettably there is a problem with the batch, the outcome can be controlled a lot more efficiently the smaller the batch is.

Due to the reduced production time of smaller batches, the equipment and therefore overheads can also be more efficiently utilized, minimizing bottlenecks and downtime in the production processes, which are all-too-common in bulk production.

These are just a few techniques of many that can be very useful to manage inventory in a company. Their application is made easier and enhanced by the use of cloud-based inventory management software with the combined outcome of better controlling stock, minimizing production costs and maximizing profit.

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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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