5 Inventory Management Strategies to Improve Efficiency
Inventory management involves keeping track of a company’s stocked goods, making sure that the right products are in the right place at the right time, and at the right cost.
An effective inventory management system enables a company to react quickly to market demands and stops them from falling into either having too much or too little stock: both highly undesirable scenarios.
Strategic inventory management makes your whole organization more efficient, but it is an ongoing challenge for most companies. Here are five excellent inventory management strategies that you can implement to improve efficiency and sales.
1. Automate your inventory management system
Even if you run a small company, relying on a manual inventory management system – humans counting things – can be bad for business. Even the most diligent employee can get it wrong, leading to educated guesses and a high margin for error – which in turn leads to upset customers and potentially lost sales. Manual inventory counts are also time-consuming, frustrating for your staff and drain precious manpower resources that could be dedicated to more productive work.
An automated inventory management system can take care of this arduous task with much greater precision and efficiency. Inventory levels are tracked and provided in real-time, meaning a customer query about whether a product is in stock can be answered immediately.
Modern inventory management systems can incorporate barcode technology, using wireless technology to transmit information to a central computer and store data in the cloud.
2. Use data analytics
Having access to real-time inventory data and analytics enables you to have accurate product and sales forecasts instantly. The data can be used to predict market demand, helping a business to scale its inventory up or down at the correct time, resulting in increased profits. Predictive data analytics has several benefits including:
Increasing cash flow by reducing the amount of capital that is invested in inventory
Improving customer service by providing more accurate availability of merchandise
Predicting the appropriate amount of inventory necessary to meet demand
Improving profit margins by limiting the discounting or scrapping of old stock
Once you have the data for your sales forecasts available you can use this to market your business to specific areas of your audience/customer base. You can do this through a targeted advertising campaign that ensures the right people are finding out about your business at the right time.
The benefit of adopting this tactic is that your advertising campaign will produce its own data analytics. This means you can refine your approach with each campaign that you run, evolving your strategy at each stage and making sure that your available inventory matches the demand of your customer base.
3. Use the best inventory optimization software for your business
Different businesses have different requirements for their inventory management systems and the right software will enable you to improve efficiency. Inventory optimization software is a computerized system that tracks items and orders through the entire supply chain, allowing you to see every part of the operation in one place and manage it effectively and efficiently. However, as not every type of software is right for every business, there are various options to choose from, including:
Manually managed inventory systems. Inspired by spreadsheet technology, these systems are ideal for start-ups and small companies transitioning from paper-based stock management. They are simple and focus on ordering and tracking a limited number of similar products.
Barcode scanning systems. Barcode scanning allows a company to process a large number of items, including incoming inventory, as well as data from cash registers and point of sale systems.
Advanced radio frequency systems. Radio Frequency Systems (RFIDs) guarantee efficiency by automating warehouse control end-to-end, making them popular with large companies with thousands of orders to move every day, such as Amazon.
4. Integrate mobile technology
Mobile technology can improve efficiency by allowing staff to interface with the inventory management system using an app. Mobile apps can help warehouse workers control and track inventory, and manage assets, shipments and operations at any time and from any location. They are also a lifeline for sales people, giving them real-time inventory data and accurate information, as well as enabling them to request stock replenishment when in-store inventory levels are low. Having immediate access to this crucial information drives efficiency at all levels of the supply chain and results in better customer satisfaction.
Before choosing an app for your business, you need to determine which best suits your company’s needs, taking into consideration things like the number of staff that will be using it, whether it needs to integrate with your existing systems and, crucially, your budget. Doing some research before making your choice could save a lot of time and hassle in the future.
5. Forecast effectively
The most important part of efficient inventory management is accurate forecasting – you need the ability to make informed predictions and decisions about placing orders. For example, is your company doing a promotion that may increase product demand? Do seasonal events, such as Christmas or vacations, affect demand? What products sell quickly and which do you sell the most of? Accuracy in forecasting can have a huge impact on profitability. There are two main inventory forecasting models:
Quantitative forecasting. This method involves using past sales data to predict future demand. The more data you have, the more accurate the prediction will be.
Qualitative forecasting. This method involves predicting demand based on less measurable factors such as potential demand and market forces, relying on the knowledge of experienced experts.
While the latter method is more of an art than a science and takes a while to finesse, the former method can be easily leveraged to increase efficiency, using data analysis techniques.
An efficient inventory management system means spending less on storage, having less stock redundancy, reducing the amount of money invested in stock, and improving customer service. Taking a firm grip on your inventory management strategy will increase efficiency, which in turn leads to increased sales. Implement the tips described above and watch your business become a streamlined, profit making machine.