Whether you are a small business or a large enterprise, inventory management is key to success. If you stock up in excess, you are unnecessarily blocking cash. On the other hand, understocking means not being able to meet urgent orders upfront. Like most things in life, balance is key when it comes to efficient inventory management.
Before we get into the tips for efficient inventory management, it is important to understand the different components of inventory. The term includes raw materials, semi-finished goods as well as finished goods. Buffer stock is also considered a part of inventory. Hence, having a wholesome approach is a must while selecting a system.
Let us get right into how you can increase your profitability and improve cash flow management by efficient inventory management.
- Proper warehousing – A warehouse is where you will store all your inventory. It is the central hub of the entire logistics supply chain. This means that your finished products will first go to the warehouse where it will be packed and later on shipped to the final destination.
In most cases, the processing of any returns and generation of MIS reports for decision-making also takes place at the warehouse. Warehouse consulting, therefore, becomes an important cog in the wheel.
- Sort your inventory – Assuming you have multiple products in your inventory, it becomes crucial for you to sort them into different categories depending on the line of business you are in. For instance, if a particular category of your products is always in demand and needs to be delivered on short notice, you need to stock up on it.
Similarly, if there is a product in your brochure which needs to be custom built or is a high priced item with fancy manufacturing requirements, you need not worry about keeping a stock and can have just one or two samples to show them to prospective customers.
- Good tracking – A product goes through various stages even after it is at the finished stage. Once an order is placed, the product is shipped from the warehouse. The tracking information about the product needs to be updated in the system at each stage so that you are aware about the inventory levels at every point of time.
Further, detailed information about the product like manufacturing information, bar codes, SKUs, country of origin and batch number must also be linked uniquely to each item of inventory.
- Regular audits – The success of any system of inventory management lies in regular audits. By audit, we mean not just plugging any loopholes in the software used for tracking. We mean doing a physical count of the inventory and matching it with the information generated by the system.
The frequency of these physical checks can be annual, sem-annual or more frequent. However, the checks must be random and thorough in order to ensure that the system is truly efficient.
- Use technology to your advantage – While physical checks are necessary, technology has its role in the whole process too. Unless you are a small business, doing inventory management on Excel is not something you should be proud of.
A common misnomer among business owners with regard to software used for inventory management is that it is expensive and complicated to use. While many such software are so, there are enough reasonably priced options which are user friendly. The accuracy of a tech based inventory management system is much better than a manual one.
- Standardize your processes – The importance of standardized processes in inventory management cannot be stressed enough. If each person who receives incoming inventory, categorizes and receives it in a different way, the whole system is bound to go haywire.
For instance, if there is no standard procedure with respect to outgoing inventory and one worker marks all the outgoing inventory at the end of the day in the system and another worker does it every time a product is dispatched, then there is bound to be a reconciliation error at the time of shift handover.
- Focus on order management – More often than not, the purchase department is too focused on price as a relevant factor for placing orders. There needs to be proper coordination between the two teams to ensure that you do not go over capacity.
At the end of the day, using certain technology with the help of devices like POS systems can speed up your supply chain. These systems must integrate smoothly with the inventory management system to produce smart results.