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Inventory management directly impact the whole business itself. inventory management assist in decision making when to buy, avoid out of stock, stoppage in production, lost of sale, decrease obselete items and basic requirement for planning.
1. Accurate forecasting of requirement for the next cycle or next two cycles. If you over-forecasted or expected lesser consumption, you are in bad shape. Forecasting is a critical element so it should be again reviewed during a turnover cycle.
2. You should have right product in stock at the right time, it minimizes risk of losing client and in return profit gain.
3. You should have optimum level of inventory, neither too much nor too less in stock. This practice will reduce also your total inventory carrying cost and in return profit gain.
4. Firm trust on delivery schedules given by the suppliers. Any delay exceeding to your safety or buffer stock consumption time may lead to serious consequences like supply chain breakdown that ends up with total system collapse.
5. Focus on both supply side and demand side inventory risks during the cycle. Supply side risks are Delivery, Quantity and Reliability whereas demand side inventory risks are inaccurate forecasting or change in requirements for any reason like losing a client or else.
6. Use a reliable software tool in order to have full control on the inventory and SC cycle. This will give you auto stock out alert and Re-ordering time. You don't need big team to handle smooth inventory operation. Data driven inventory management is more successful and less money and time consuming.
7. Use inventory accounting methods, FIFO and LIFO methods to your requirement when and where what is required. Accounting method of inventory management plays a remarkable role in saving huge amount to be paid in form of taxes.
8. Many other way to have positive impact as profit gains.
Make inventory management easier by setting “par levels” for each of your products. Par levels are the minimum amount of product that must be on hand at all times. When your inventory stock dips below the predetermined levels, you know it’s time to order more.
Ideally, you’ll typically order the minimum quantity that will get you back above par. Par levels will vary by product based on how quickly the item sells, and how long it takes to get back in stock.
Although it requires some research and decision-making up front, setting par levels will systemize the process of ordering. Not only will it make it easier for you to make decisions quickly, it will allow your staff to make decisions on your behalf.
Remember that conditions change over time. Check on par levels a few times throughout the year to confirm they still make sense. If something changes in the meantime, don’t be afraid to adjust your par levels up or down.
“First-in, first-out” is an important principle of inventory management. It means that your oldest stock (first-in) gets sold first (first-out), not your newest stock. This is particularly important for perishable products so you don’t end up with unsellable spoilage.
It’s also a good idea to practice FIFO for non-perishable products. If the same boxes are always sitting at the back, they’re more likely to get worn out. Plus, packaging design and features often change over time. You don’t want to end up with something obsolete that you can’t sell.
In order to manage a FIFO system, you’ll need an organized warehouse. This typically means adding new products from the back, or otherwise making sure old product stays at the front. If you’re working with a warehousing and fulfillment company they probably do this already, but it's a good idea to call them to confirm.
Part of successful inventory management is being able to adapt quickly. Whether you need to return a slow selling item to make room for a new product, restock a fast seller very quickly, troubleshoot manufacturing issues, or temporarily expand your storage space, it’s important to have a good relationship with your suppliers. That way they’ll be more willing to work with you to solve problems.
In particular, having a good relationship with your product suppliers goes a long way. Minimum order quantities are often negotiable. Don’t be afraid to ask for a lower minimum so you don’t have to carry as much inventory.
A good relationship isn’t just about being friendly. It’s about good communication. Let your supplier know when you’re expecting an increase in sales so they can adjust production. Have them let you know when a product is running behind schedule so you can pause promotions or look for a temporary substitute.
A lot of issues can pop up related to inventory management. These types of problems can cripple unprepared businesses. For example:
It’s not a matter of if problems arise, but when. Figure out where your risks areand prepare a contingency plan. How will you react? What steps will you take to solve the problem? How will this impact other parts of your business? Remember that solid relationships go a long way here.
Regular reconciliation is vital. In most cases, you’ll be relying on software and reports from your warehouse to know how much product you have stock. However, it’s important to make sure that the facts matche up. There are several methods for doing this.
Physical Inventory
A physical inventory is the practice is counting all your inventory at once. Many businesses do this at their year-end because it ties in with accounting and filing income tax. Although physical inventories are typically only done once a year, it can be incredibly disruptive to the business, and believe me, it’s tedious. If you do find a discrepancy, it can be difficult to pinpoint the issue when you’re looking back at an entire year.
Spot Checking
If you do a full physical inventory at the end of the year and you often run into problems, or you have a lot of products, you may want to start spot checking throughout the year. This simply means choosing a product, counting it, and comparing the number to what it's supposed to be. This isn’t done on a schedule and is supplemental to physical inventory. In particular, you may want to spot check problematic or fast-moving products.
Cycle Counting
Instead of doing a full physical inventory, some businesses use cycle counting to audit their inventory. Rather than a full count at year-end, cycle counting spreads reconciliation throughout the year. Each day, week, or month a different product is checked on a rotating schedule. There are different methods of determining which items to count when, but, generally speaking, items of higher value will be counted more frequently.
Some products need more attention than others. Use an ABC analysis to prioritize your inventory management. Separate out products that require a lot of attention from those that don’t. Do this by going through your product list and adding each product to one of three categories:
A - high-value products with a low frequency of salesB - moderate value products with a moderate frequency of salesC - low-value products with a high frequency of sales
Items in category A require regular attention because their financial impact is significant but sales are unpredictable. Items in category C require less oversight because they have a smaller financial impact and they're constantly turning over. Items in category B fall somewhere in-between.
A huge part of good inventory management comes down to accurately predicting demand. Make no mistake, this is incredibly hard to do. There are so many variables involved and you’ll never know for sure exactly what’s coming—but you can get close. Here are a few things to look at when projecting your future sales:
If there's something else that will help you create a more accurate forecast, be sure to include it.
Dropshipping is really the ideal scenario from an inventory management perspective. Instead of having to carry inventory and ship products yourself—whether internally or through third-party logistics—the manufacturer or wholesaler takes care of it for you. Basically, you completely remove inventory management from your business.
Many wholesalers and manufacturers advertise dropshipping as a service, but even if your supplier doesn’t, it may still be an option. Don’t be afraid to ask. Although products often cost more this way than they do in bulk orders, you don't have to worry about expenses related to holding inventory, storage, and fulfillment.
It’s time to take control of your inventory management and stop losing money. Choose the right inventory management techniques for your business, and start implementing them today.
Optimization is key. Organizations talk about being lean, but never really understand it and how to manage their inventory, noting that to keep inventory cost down they must be optimal with their inventory. Organizations must work demand, usage, lead time and cost in order to be optimal. Having inventory sitting on shelves not be used, cost money for insurance, warehouse space, care and maintenance and obsolescence, which is another issue many organizations do not understand. Culture can be the worse culprit, Oh I got to have it in case I run out. Healthcare is bad for this because they put in a lot of non supply personnel into positions to manage their inventory without the training, experience and knowledge on how to manage the inventory.
Company can save money purchasing the right and precise requirement which is requested because it ill save time and people man hours if the right material s ordered and delivered on time
A penny saved is a penny earned. Inventory management plays a crucial part in saving money because we must only procure raw materials or inventory to the extent required for production or for trading. Excess inventory will not only lead to damages (if not taken proper care) and also it involves cost in both procuring the inventory and managing it which the company can utilize in other business requirements instead. Also, excess inventory will take more shelf space and we might find it difficult some times to store the materials which are actually needed for immediate consumption (usage).
On the contrary, if we are getting good discounts for procuring more stocks then it's always advisable to procure more materials especially, when there will be price hikes in the inventory in the future.
Thanks
I think this is the most important issue in the company, if you can't manage the inventory, you may loose money or market ...
You will lose many in case you order in the wrong time, may cause high stock, or sometimes you need to pay a big a ttention on the currency.
While lose the market, in case you didn't refresh your stock
by reducing cost of delay in production. by incresing effeciency in works through availability of inventory stock.
Efficient inventory management will lead to on time purchase of right materials at the right time therefore company can save more time, effort and unncessary expenses.
Operations management is a fundamental part of any organization. it plays a vital role in the success of an organization. it is the area of management which is concerned with the creation of goods or services of a company. The field is important as well as challenging and vital for all types of organization ranging from manufacturing to retailing to service.
We should maintain a minimum/maximum stock and we should have a data base to check our inventory level. When we say min/max we know when to re-order the stock. We should have a record or history of the items to purchase with regards to transit time the availability the shelf time and etc. to ensure we don't have high inventory level.
