Top Inventory Management Techniques

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If you read the title of this article and think you will learn a few key techniques that ensure perfect inventory management, you may be disappointed. Inventory management has developed over hundreds of years, and in the modern day there are dozens of ‘techniques’ that managers can employ to increase the efficiency of their inventory system (or at least try!). Some are strategic, others are ‘best-practices’, and some will be applicable depending on the type of business you operate. Nonetheless, below is an overview of several useful techniques that are commonly used in inventory management today.

  1. Bulk Buying

It’s no secret that suppliers will give a discount when you buy large quantities. But is this the best strategy for you? Be sure to compare the cost savings you receive from bulk buying against the storage costs of holding more stock than you normally would. There are many types of holding costs such as: storage space, warehousing staff and equipment, heating, ventilation, and security. These can quickly erode your cost savings. If this is happening to you, you may want to consider another strategy.

  1. Just-In-Time Inventory

Pretty much the opposite of bulk buying, this technique involves ordering inventory so that, as the name suggests, it will be available to ship to the customer precisely when it is needed. This minimizes your inventory on-hand and therefore your holding costs. It may sound great, but you need to be aware of the risks. This method exposes you to the risk of inventory shortages, which can permanently damage customer relationships. Hence before trying just-in-time, be sure to have at the very least a detailed knowledge of customer demand patterns, availability of supply, and delivery specifications. This knowledge means you can accurately plan your product to arrive on time to the customer.

  1. Drop shipping

Drop shipping is where you sell a product to a customer, but rather than supply them with stock on-hand, you simply pass on delivery details to the manufacturer who ships it to the customer for you. This is popular with goods such as furniture and appliances. As a retailer, this gives you cost savings, as you don’t have to hold inventory. To decide whether this is a worthwhile option for your business, check whether your manufacturer is willing to do this, and what kind of premium they will charge for doing so,

  1. ABC Analysis

With ABC analysis, you break your inventory into three basic categories. Category A includes items of high value that are small in number, category B includes items of moderate value which are moderate in number, and category C includes low value items that are high in number. You can then give separate and different treatment to each category. For example you need to have high visibility and tight control over category A items, as they have a large impact on sales and need to be re-ordered frequently. Whereas for category C items a more hands-off approach can be taken and minimal attention is needed.

  1. Revision

Regular stock review, comparing current inventory levels against future needs, is an important practice. It’s simply not good enough in the modern business environment to base your inventory strategies on past trends and needs. What is different about the market this year? Where can we cut costs? What can we do that’s new? These are the kinds of questions you will need to ask yourself on a regular basis, and then implement the answers into your future strategy.

  1. Managing Supply Relationships

Keeping open lines of communication with your suppliers is critical. When you know the needs and capabilities of your supplier, you will be better placed to make time and cost savings in your dealings with them. It’s not all about them however. Be clear about what you want regarding order quality and delivery times, and stick with those suppliers who keep to their word. Also, don’t be afraid to ask for better terms. Minimum order quantities for example are often negotiable.

Be sure to spend some time exploring what techniques are best for your business. Implement a software solution like Unleashed, find the right techniques – and implement them today.


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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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