So, proper inventory management can generate profits and improve your bottom line. Even if you already have a sound inventory management system, constant necessary improvements could take your profits to a higher level.
But, how do you do that? Here are six ways to improve your inventory management:
Let’s take a look:
1. Follow The 80-20 Inventory Rule
According to the 80-20 rule, 80% of your profit comes from 20% of inventory. So, identify 20% of your products that sell faster, more consistently and have a higher margin than slower sellers. With a modern enterprise resource planning (ERP) dashboard and supply chain KPIs, you can easily calculate this.
Optimize your best-performing stock for both volume and profitability. Make sure you always have a backup of these products and enough space to store them.
But it does mean you ignore the remaining 80% of your inventory. So, what should you do with this? Break down mid-level performers between the top 20% and the bottom 30%. For these products, you’ve to brainstorm and figure out how you can improve them and make them profitable.
By periodically applying the 80-20 formula, you can rationalize your inventory with poor-performing products that generate neither sales nor profits.
2. Maintain Safety Stock Levels
Revenue lost from stockouts often results in losing customers to your competitors. Stockouts also jeopardize the overall efficiency of your supply chain. That’s why maintaining safety stock levels is critical.
Safety stock, also known as buffer stock, refers to the level of extra stock to mitigate risks of stockouts due to uncertainties in supply and demand. These uncertainties generally include:
- Excess demand
- Inaccurate inventory or demand forecasts
- Supplier delays
- Failure to timely reordering
- Lack of finance
- Maintaining appropriate safety stock levels prevents business disruption due to stocking delays and temporary outages.
The level of extra stock is calculated based on factors, including vendor delivery times, average inventory consumption, reorder timelines, to name a few.
Excellent inventory management depends on the coordination between cycle stock and safety stock. It ensures that your inventory levels align with supply and demand, making inventory management simpler and more consistent.
3. Perform Data Analytics
There are many ways data analytics can help improve inventory management. That’s why data analytics is an important feature of any good inventory management system. It should be able to process data from sales and anticipate future demands while keeping in mind the lead times of your business.
Here’s how data analytics can help inventory management:
- Operational management can view inventory-related operations and metrics in real-time. This helps eliminate bottlenecks timely and improves your operational and sales efficiency.
- Real-time data helps ensure that your company earns healthy profits by investing in inventory that gets higher sales and high demand.
- Using data, you can understand the reasons behind the sales of certain products and the return of certain products. You can also predict seasonal trends, depressions, or spikes in demand. Accordingly, you can maintain the right level of inventory to meet demand.
- Real-time data also helps prevent product stockout and overselling while speeding up order fulfilment.
4. Pay Attention to Warehouse Management
Lack of warehouse management can result in delayed product delivery times and mismanaged inventory. On the other hand, effective warehouse management speeds up order fulfilment and helps with inventory management.
In fact, warehouse management is a subset of inventory management. It focuses on tracking all incoming and outgoing products and where each product is located.
Here’re some quick tips for warehouse management:
- Ideally, you should place your in-demand products closest to the dispatch area. In short, fast-selling items must be more accessible than slow-moving products.
- Structure your storage solutions in such a way that you can move them around easily.
- Categorize the storage and label all inventory clearly so that workers handling orders in the warehouse never feel confused.
This is how effective warehouse management can help in improving inventory control.
5. Use the Slow Mover Strategy
Over time, many slow-moving items in your stock become out of date. These products remain forgotten in warehouses and occupy your valuable space, labor and other resources. From the business perspective, slow-moving items make you lose money.
Efficient inventory management is about getting rid of slow-moving and obsolete items timely. So, put these products on sale with attractive discount offers. You can also push them to retailers who specialize in selling such products.
In this way, your workforce will move closer to the fast-selling items. As a result, you can focus more on best-selling items that generate the most profit for you.
6. Deploy a Reliable Inventory Management Platform
Managing your inventory by spreadsheets may seem like the easiest and cheapest solution. But it’s an obsolete, slow, and inaccurate method of managing your inventory.
Time is an asset for businesses, and no business can afford data inaccuracy to succeed. You can achieve accuracy at reduced cost and time with the right inventory management system. Ideally, choose a cloud-based inventory management software solution that provides a live update to your inventory data anywhere at any time.
A dedicated inventory management system helps track your stock through the entire supply chain. It also covers other business aspects that touch inventory, everything from production to warehousing and shipping. Core features of an inventory management system are (not limited to):
- Inventory tracking
- Inventory optimization
- Fulfilment and replenishment
- Invoice and billing
- Order and shipping management
- Return material authorization
- And more.
It should offer integration with other platforms used for eCommerce, accounting, shipping, marketing, etc.
Improve even the tiniest detail that you think is important to the efficiency and management of your inventory. Follow the above-mentioned tips and start early on with the right inventory management system.
Request a free demo for our cloud-based inventory management software. At Think Aisle, we can design a custom inventory management solution for your unique business needs.