Every business needs precise inventory management, no matter what type of a venture – it can be a newly created business, or a business with years of experience. Proper management of your inventory will thus help you to cover less expenses, spend less of your time and above all, Expand is undoubtedly useful to the growth of your business. In this article, 12 techniques of inventory management which can be implemented to ensure adequate stocks and advance business growth have been included.
ABC Analysis
ABC analysis is a strategy of inventory classification based on its importance for the company and its value. I have, therefore, categorized the items into ‘A,’ which are items of high value and should be strongly supervised; ‘B,’ which are moderately important; and ‘C,’ which has low value. This technique highlights important inventory to existing business and the overall costs are minimized.
Economic Order Quantity (EOQ)
EOQ is an academic model that sets the optimal frequency of inventory ordering that will minimize costs of ordering and holding inventories. When the costs of ordering and holding have been well measured, then business can determine the most appropriate amount of inventory which when applied will eliminate conditions where companies run out of stock or the are left with excess stock.
Just-In-Time (JIT) Inventory
JIT is a production technique that was designed to increase a company’s roi through a system that only receives inventory where it is required for use. This method cuts on storage space and avoid the problem of having stocks for a long time without being used or perishable stocks taking long time before they are used, it is therefore a good tool for any organisation that aims at cutting on its stock holding costs.
Barcode and RFID Technology
Using of the barcode and RFID technology will assist the business organization to monitor the available stock in the stores or warehouses to prevent stock out situations. This technology is very important in increasing efficiency of stock management as it exclude human factors that may have great influence in the business.
Inventory turnover ratio
Inventory turnover is one of the financial ratios that look at the rate at which a business replaces or turns over its stock. By using this ratio, businesses get an idea of whether their inventory is too much or too little and then take appropriate action. High inventory turnover ratio generally spells good news for the organization and its inventory control.
Of course when solving real life problems the values of minimum and maximum stock level can not be strictly fixed as some organizations tends to think.
Minimum and maximum levels will ensure businesses keep the right stock levels while preventing overstocking and stock shortages. Pay much attention to the levels, it will be easier to decide whether there is the need to order new products or to decrease the demand and avoid excess.
First-In, First-Out (FIFO)
FIFO is an inventory management technique whereby inventory used is the oldest and not the newer one. This method is highly relevant for companies working with perishable products; thus, goods can be sold before they go bad.
Inventory Tracking Software
The reliable inventory tracking software investment will help in organizing the inventory, and assist business organizations in coming up with right decisions through the provision of real time information. These software solutions will also eliminate some of the time-consuming tasks, including processing orders and monitoring inventory, meaning the businesses will cut down on time wastage and possibility of inaccurate work.
Cycle Counting
Cycle counting as opposed to physical inventory counting is a method where the process involves counting a few items at a go, at different interval times than the regular frequency. With this method, businesses can be able to discover differences in the stock and sort them immediately. Cycle counting is one of the useful procedures of nurturing accurate records of inventory and avoiding errors.
Safety Stock
Saying stock is a buffer stock or safety stock is an additional stock that organizations maintain to cater for the unpredicted demand or the unpredicted force majeure on the supply side. Purchasing safety stock facilitates assurance of adequate stocks for use in customer satisfaction as well as minimizing on cases of stock out.
Vendor Managed Inventory (VMI)
VMI is the style of SCM where a supplier is directly involve with the management of his/her customer’s inventory. This minimizes risks such as overstocking or even stock out and thereby the goods are frequently restocked. VMI is an efficient tool for maintaining and developing cooperation between companies and suppliers in context of inventory management.
Continuous Improvement
Last but not the least, the CI mindset will enable businesses to remain relevant in the industry and remain relevant in the market competition. Freeman emphasizes on the aspect of time-to-time technical analysis of the inventory management processes that you are employing; it will assure you are improving on it and changing where necessary.
Conclusion
Indeed, proper and efficient management of inventory plays an important role to help make the company successful. When the 12 inventory management methods are adopted, the inventory levels will be well controlled and the costs will be minimized to enable growth. If your company follows ABC analysis, EOQ, JIT, barcode and RFID technology, volume of inventory turn over, maximum and minimum quantity, first in first out, computerized inventory tracking system, cycle counting, safety stock, vendor managed inventory and continuously improving your system, you are on the right track to make your organization successful in the long run.
