As your business grows and the demand for your products or services increases, you must ensure that your inventory management process keeps up with the pace. You want your business operations to continue running smoothly without increasing overhead costs.
Effective inventory management will help you lower your costs and increase your profits. This is because storage space can be expensive, especially when your business grows. So, by managing your inventory correctly and avoiding a surplus of items in storage, you’ll need less storage space and lower your costs.
This is especially important if you have multiple locations for storing your inventory. Effective inventory management will help satisfy your customers, as you can deliver your products quickly and without issues.
To improve your inventory management and cash flow and take your business to a whole new level, you need to use sound inventory management techniques. Today, we’ll explore the most important ones.
Setting Inventory Stock Levels
One of the most essential inventory management techniques is setting proper inventory stock levels. Stock levels represent a minimum quantity of a particular item that should always be available. When an item’s quantity falls below the minimum stock level, you know it’s time to place a new order. If you have a properly configured ERP system, that order can be placed automatically, so you are never short on stock.
The key here is to order the minimum amount of particular products that will enable you to reach your suggested optimal stock status. You want to avoid ending up with either excess inventory or needing to order again quickly. Regularly monitoring inventory status and ordering only what you need when you need it will allow you to achieve inventory cost utilization.
First-In, First-Out (FIFO)
Understanding essential inventory management techniques is an integral part of proper inventory control. They also directly impact the cost of your business records as you deplete your inventory through natural consumption. First-In, First-Out represents the principle of recording the cost of your oldest goods first instead of those you just purchased. This method will also ensure that your Balance Sheet is most accurate as the cost of the most recent items purchased remains in inventory, regardless of which physical item you selected during the pick, pack, and ship process.
Accurate Forecasting
If you cannot predict your future sales accurately, you may overload your inventory or need more when you need it. This is why you need to make sure that you create accurate forecasts for your product demands.
First and foremost, you need to keep track of the market trends because they tend to change rapidly. Could you look at your growth rate for the current year and your weekly sales from the previous year? Checking those weekly sales every single week and considering the overall economy will help you project your future sales much more accurately.
However, to do so effectively, you need to know which products’ demand can be predicted. Classify your products as predictable and unpredictable so that you can create accurate forecasts for the former and keep the latter on a deliver-on-order basis. That way, you can deliver your products quickly and significantly reduce storage costs.
Proper Inventory Valuation
Proper inventory management begins with deciding how to account for the movement of inventory in and out of your physical warehouse and your mobile truck stock. Understanding the difference between proper inventory movement will provide a clear insight into your stock issuance and better control over Min/Max levels and Inventory stock status. With the advent of computerized inventory, what was once a manual task monitoring inventory movement periodically has become much more manageable. Today, you can track your actual inventory from when your goods arrive to when they are shipped or used on a Job Site, providing you with a constant, up-to-date record of what is available, reserved, packed, and ready for delivery.
Smart Contingency Planning
Many problems can arise regarding inventory management, so you must always have a contingency plan. You need to identify the potential risks and determine the best ways to solve these problems so they don’t negatively affect your business.
For instance, your sales may significantly increase, and you may empty your entire stock. A seasonal spike in sales may result in your warehouse needing more storage room for all the goods you need to fulfill the orders. Or, you could miscalculate your inventory and need more high-demand products in stock.
There are many more issues that you may encounter, so you must know what to do to solve them. That is why proper contingency planning is one of the most critical steps that you need to take to manage your inventory effectively.
Conclusion
These are the most essential inventory management techniques to ensure complete inventory control. You can start implementing them as soon as possible, and you will reduce your costs, improve customer satisfaction, and generate more sales.