Inventory management is the process of controlling physical items which are purchased, manufactured, or stored for use by a business. Inventory can include raw materials, partially finished goods, and finished products. Inventory management involves ordering the right amount of each item at the right time so it can be efficiently used when needed.
The inventory management department generally has to consider several factors before placing an order:
- How much inventory is currently available;
- How much inventory should be placed in storage;
- How much inventory will be needed for next month/quarter/year;
- The cost of storing additional inventory;
- Whether additional costs (such as transportation) could make buying more equipment less expensive than holding larger inventories; and
- What sort of lead times are required for different types of supplies (e.g., days for food shipments, weeks or months for industrial equipment).
1. Start with Accurate Records
The number one inventory management tip is to start with accurate numbers. If you don’t know how much of an item you have, or if that information changes frequently, it will be much harder to manage your inventory. The first step should always be updating your data and keeping track of everything in real-time whenever possible. You can also determine which items are most important by tracking high-value consignments or any type of item that has moved well for you in the past so that they can be handled conservatively when determining to reorder points, so there’s never a shortage of these items again.
2. Analyze Sales History
Another key factor is performance history – understanding what moves well and what doesn’t over time will give you a better handle on how much to order in the future. A sales history is probably the best predictor of future sales, so it’s worth looking back at your records for this information.
3. Know What’s In-Demand
What’s in demand in your store? It could be that certain items sell consistently while others stay stagnant or even sit around gathering dust. If you notice that particular products rarely move, consider taking them off your shelves and replacing them with other products that perform well for your business. Could this be an opportunity to highlight different inventory management methods (i.e., by category vs. alphabetical)? Or would rotating out these slow-moving items make way for newer arrivals? You may want to consider a few different plans of action.
4. Be Ready to Reorder
Once you know how much of an item you have on hand and what is selling, it’s time to work out when will be the best time to order more inventory. You may want to determine your safety stock level before deciding so that there’s no shortage of items for your customers. In addition, try setting a lead time – this is the amount of time in advance that you need to place an order with your supplier. The more accurate your numbers are, the better job you’ll do at predicting exactly when certain products will move and when it’s time to reorder for maximum efficiency.
5. Food Production Software
Food manufacturing software is a branch of inventory management software for more advanced users. It’s ideally suited to those who want to use an automated system to manage their perishable goods instead of doing it by hand or with spreadsheets. In this case, you can easily determine the time you need before your next order based on your products’ lead time and demand history. This is usually referred to as EOQ (Economic Order Quantity) or MPS (Master Production Schedule).
6. Keep a Close Eye on Suppliers
Finally, always keep a close watch on your suppliers – don’t let them overcharge you! Never have more than one supplier per item unless there are very specific circumstances – this reduces confusion and increases bottom line profits at the same time. Sourcing goods from multiple suppliers is now easier than ever, and there are several advantages to doing this, such as pricing comparison and product availability – make sure you do your research before signing up with a supplier or vendor of any kind.
7. Keep Inventory Levels Below Your Target Number
This may seem like strange advice at first. Still, suppose you don’t want to spend too much time tracking inventory (and we all know that the more automated and streamlined an operation is, the better). In that case, you should keep your inventory numbers low enough that they won’t become overwhelming for one person to handle. This doesn’t mean having too few items in stock; instead, it means not holding too many of them at once so that you can minimize the amount of time it takes to restock your shelves or reorder from a supplier.
