Stockouts can be a frustrating experience for distributors and manufacturers. And holding excess inventory that lock in capital is equally distressing for business owners. How can you fulfill customer orders on time and stock enough goods to meet market demand without tying up cash in excess stock? Read on to learn how to maximize your operating margins with effective inventory management strategies and the right technology that gives you complete visibility into inventory levels, goods movement across warehouses and order-to-cash processes. Overall efficiency is closely linked to managing inventory, and the best way to do that is by leveraging automated tools and smart systems to track inventory and optimize your supply chain. Aneffective inventory management systemallows you to react quickly to market demands and fulfill customer orders on time while ensuring you maintain optimal stock levels. It enables you to strike a balance between being under and overstocked—both undesirable scenarios. It also helps you manage the flow of goods from manufacturers to warehouses and right up to the point of sale. An automated inventory management software or anERPsystem uses real-time data to optimize stock levels against demand forecasts, release locked cash and boost profits. Strategic inventory management is an ongoing challenge for most companies.
What is an inventory management system?
Inventory Management Strategies to Improve Efficiency
Stockouts can be a frustrating experience for distributors and manufacturers.
And holding excess inventory that lock in capital is equally distressing for business owners.
How can you fulfill customer orders on time and stock enough goods to meet market demand without tying up cash in excess stock?
Read on to learn how to maximize your operating margins with effective inventory management strategies and the right technology that gives you complete visibility into inventory levels, goods movement across warehouses and order-to-cash processes.
Overall efficiency is closely linked to managing inventory, and the best way to do that is by leveraging automated tools and smart systems to track inventory and optimize your supply chain.
Aneffective inventory management systemallows you to react quickly to market demands and fulfill customer orders on time while ensuring you maintain optimal stock levels. It enables you to strike a balance between being under and overstocked—both undesirable scenarios.
It also helps you manage the flow of goods from manufacturers to warehouses and right up to the point of sale.
An automated inventory management software or anERPsystem uses real-time data to optimize stock levels against demand forecasts, release locked cash and boost profits.
Strategic inventory management is an ongoing challenge for most companies.
Consider implementing these five inventory management techniques to improve efficiency and increase revenue.
1. Use ERP software designed for inventory management
Many small companies initially use spreadsheets to manage their inventory counts. But as they grow, they often switch to a basic inventory management tool that allows them to track and monitor goods efficiently. Upgrading to an ERP solution will prove even more beneficial—allowing them to handle their supply chain and order-to-cash processes from a single system.
2. Automate your inventory management system
Manually counting stock is inefficient. It’s time-consuming and leaves room for manual error. Inaccuracies can not only lead to revenue losses but can also result in customer dissatisfaction. And in small companies where resources are limited, that time could be used more productively in other growth-oriented activities.
An ERP system automatically updates inventory levels whenever stock is received or dispatched. So stock counts are always up-to-date, in real-time. With all relevant purchasing and sales order data in the same system, you can avoid stockouts or overstocks.
You can add other technologies to automate inventory management further:
- Barcode scanning helps you process incoming inventory faster and more accurately. It streamlines inventory management and provides real-time information about stock levels and sales.
- Radio Frequency Identification (RFID) systems that automate warehouse control are ideal for companies that handle large volumes of orders every day. RFID reduces the time and effort required for manual tracking and increases accuracy.
3. Leverage real-time data & analytics to optimize inventory management
With access to real-time inventory data and advanced analytical capabilities, you can:
- Reduce inventory investment and release locked cash flow
- Improve customer service with accurate product availability information
- Predict the optimal inventory quantities required to meet future demand
- Limit the discounting or scrapping of old stock to improve profit margins
4. Use demand planning tools to forecast accurately
Inventory management ERP solutions come with forecasting tools that use historical data to predict future demand. And accurate sales forecasts allow you to market your business more effectively to specific customer segments.
For example, an ERP can help product sales teams coordinate with marketing to run advertising campaigns for in-stock products that also have high customer demand. This way, you can ensure enough stock is available to match the demand generated by the ad campaign.
5. Integrate mobile technology for real-time inventory updates
Choose an ERP that enables users to perform daily tasks associated with receiving, putaway, picking and packing directly from a mobile device.
Mobile scanning increases overall efficiency and ensures inventory data remains accurate and up-to-date. It allows warehouse staff to scan items as they enter, move through and exit the warehouse, ensuring that there is no lag time in inventory records. This increases real-time inventory visibility.
Surprisingly, a large number of businesses still suffer from overstocking or understocking issues. Many SMEs or smaller teams still track inventory in spreadsheets or through multiple disconnected systems.
It's time to move to smarter systems and processes.
That's why we've put together an SME guide that gives you 4 powerful ways to gain better inventory control and visibility, so you can lower handling costs and boost profits.
Download the guide now
Maximize your inventory management strategies with an ERP system
Efficient inventory control strategies are only a part of the puzzle. Using an inventory management system and integrating it with the rest of your organization is the key to yielding the best results.
Every industry follows specific inventory practices.
So, what's the best strategy your business can adopt to control inventory and manage availability across the supply chain? That depends on your business's unique needs and goals, the dynamics of the industry and the existing market conditions.
For example,wholesalerslook at an optimal mix of holding minimum order quantity (in stock) and avoiding the pitfalls of understock and overstock scenarios.
Manufacturerswant to keep enough materials in stock to meet demand and avoid long lead times on best-selling products. At the same time, they don't want to stock large quantities of raw materials that consume warehouse space. They look to accurately forecast demand and optimize the inventory control activities such as order planning, warehousing and transportation.
Choosing the rightERP solutionfor your industry's needs is key to maximizing your inventory investment and streamlining your business into a profit-making machine.
An ERP solution integrates with operations,tracks inventory statusin real-time and gives your staff instant access to a live, centralized inventory database.
AtProjectLine, we help businesses find the best-fit ERP software for their needs.
For example, if you have warehouses across various locations,NetSuite's WMS modulecan help you streamline multi-location warehouse operations while reducing operational costs.
Some companies struggle to synchronize their inventory data, order details and financial accounting data.SAP Business Onehelps you manage detailed warehouse data, optimize stock locations, track and record stock movements, execute production orders and integrate these with accounting data.
Connect with usto find the ERP that's just right for your business.
ProjectLine: ERP solutions to optimize inventory management
Did you know that only20%of companies capture more than half the projected benefits from an ERP solution?
To realize the full benefits of an ERP over time, you need to work with anERP implementationpartner that takes a business-centric approach that aligns your business goals and the ERP software to create valuable business benefits.
ProjectLine is the right partner to implement NetSuite, SAP Business One and any ERP customizations or integrations for your business. Whether you're a small business or a mid-size enterprise on the cusp of ERP transformation, we have the in-house expertise for ERP implementation, training and support.
We'll recommend and implement an ERP solution that considers your goals and best fits your needs. In fact, we'll even build a customized solution if you need one!
Let us guide you through implementing an ERP that's right for YOU.
Book a consultation now.
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Four major inventory management methods include just-in-time management (JIT), materials requirement planning (MRP), economic order quantity (EOQ) , and days sales of inventory (DSI).What are the 5 steps to effective inventory systems? ›
- Know your stock from your stuff. ...
- Liquidate Your Stuff. ...
- Organize Your Inventory: Location, location, location. ...
- Get your inventory straight. ...
- Make cycle counts…count.
- Barcode data collection. The perpetual inventory system is highly dependent on timely and accurate reporting. ...
- Cycle counting to improve accuracy. ...
- ABC analysis for prioritisation. ...
- Integrated planning and execution. ...
- Lot tracking and traceability.
- Keep your warehouse organized.
- Label inventory appropriately.
- Develop, document, and follow efficient storage processes.
- Keep a modicum of overstock handy.
- Maintain good relationships with your suppliers.
Four major inventory management methods include just-in-time management (JIT), materials requirement planning (MRP), economic order quantity (EOQ) , and days sales of inventory (DSI).What are the 4 main steps in inventory management? ›
- Assess what you have now.
- Review what you had.
- Analyse sales.
- Identify items to repurchase or retire.
Good inventory efficiency reduces the time stock spends in the warehouse, decreasing operational costs (such as storage fees) and minimizing the risk of products depreciating from becoming out of season, out of trend, or expired. This increases profits, giving you more money to invest in business growth.What is the efficiency of inventory management? ›
Inventory efficiency refers to optimizing your stock levels and warehouse space to meet customer demand, without overstretching your operational overheads. It's all about strategically placing your inventory to avoid selling out on one platform while having too much inventory on another.What is the key to effective inventory management? ›
Prioritizing your inventory helps you understand necessary ordering and manufacturing frequencies to meet your customers' needs. Inventory management tips include tracking sales, ordering and receiving stock consistently, and using specialized inventory management software.What are the top three to five principles of inventory management? ›
- demand forecasting,
- warehouse flow,
- inventory turns/stock rotation,
- cycle counting and.
- process auditing.
We've put together a list of four crucial metrics that you should keep a close eye on over the course of the year: inventory turnover, average days to sell, return on investment, and inventory carrying costs.What are the six steps in conducting an inventory? ›
- Step 1: Item classification. Each item in your inventory holding needs to be broken down into manageable categories like obsolete, excess, and working stock. ...
- Step 2: Safety Stock. ...
- Step 3: Forecasts and ordering. ...
- Step 4: Leverage your resources. ...
- Step 5: Action plans. ...
- Step 6: Technology and tools. ...
- In summary.
There are three methods for inventory valuation: FIFO (First In, First Out), LIFO (Last In, First Out), and WAC (Weighted Average Cost).What are the 4 basic types of inventory models? ›
There are four main types of inventory: raw materials/components, WIP, finished goods and MRO.How can inventory accuracy be improved? ›
- Pick a quality program and stick with it. ...
- Know what you are up against. ...
- Keep your processes simple. ...
- Examine your entire supply chain. ...
- Establish product traceability during the distribution life cycle. ...
- Select technology that fits your needs. ...
- Implement a continuous cycle-counting program.
Why Is Inventory Management Important? Inventory management is vital to a company's health because it helps make sure there is rarely too much or too little stock on hand, limiting the risk of stockouts and inaccurate records.What are inventory control techniques? ›
Inventory Control Techniques. Inventory control involves various techniques for monitoring how stocks move in a warehouse. Four popular inventory control methods include ABC analysis; Last In, First Out (LIFO) and First In, First Out (FIFO); batch tracking; and safety stock.What is inventory management with example? ›
Inventory management describes the system businesses use to ensure optimal inventory levels at all times by organizing sourcing, storing and selling both raw materials and finished product. Good inventory management leads to optimal stock levels at the right price at all times and reduces overall costs.What are the 3 main objectives of inventory control? ›
To keep inactive, waste, surplus, scrap and obsolete items at the minimum level. To minimize holding, replacement and shortage costs of inventories and maximize the efficiency in production and distribution. To treat inventory as investment which is risky.How does lean inventory improve efficiency? ›
A lean inventory approach leverages continuous improvement methods to reduce waste — of time, materials and work. That improves efficiency, saves money and ultimately enables companies to provide more value to customers.
ABC analysis is an inventory classification strategy that categorizes the goods into three categories, A, B, and C, based on their revenue. 'A' in ABC analysis signifies the most important goods, 'B' indicates moderately necessary goods, and 'C' indicates the least essential inventory.What is the golden rule for inventory? ›
Summary: Common SCM inventory golden rules are: (a) avoid situations where inventory and demand are out of balance, those slow-moving low margin products add no value to the firm and (b) production campaigns result in unnecessary inventory.What are the 4 performance measures? ›
There are many different measurement frameworks, including the balanced scorecard, activity based costing, competitive benchmarking, and shareholder value added. Each of these pro- vides a unique and different lens through which to view an organization's performance.What is the most effective inventory method? ›
The most popular inventory accounting method is FIFO because it typically provides the most accurate view of costs and profitability.What is an effective inventory system? ›
Good inventory management software should:
Prevent product and production shortages. Prevent excess stock and too many raw materials. Allow for easy inventory analysis on any device. Be accessible right from your point-of-sale (POS) system. Optimize warehouse organization and precious employee time.
- Prioritize location and accessibility.
- Establish the floor and layout arrangement.
- Get rid of unneeded stock.
- Set a cycle count schedule.
- Check stock quickly after delivery.
- Label all products.
- Keep an eye on expiration dates.
- Make sure you're keeping track of your inventory.
To measure performance in inventory management, one of the most common metrics to use is the “number of inventory turns.” This number is calculated using the ratio of the value of purchased stock to the value of stock on hand. The metric, number of inventory turns, aims to measure the movement of stock.What is the best approach for inventory accuracy? ›
Implement a continuous cycle-counting program.
Using cycle counting to maintain high levels of accuracy is one of the best ways to identify problem areas. An effective cycle-counting program eliminates the need for physical inventory expenses.
The 80/20 rule, also known as the Pareto Principle, states that 80% of results come from 20% of causes. Therefore, you need to identify and prioritize the 20% of factors that produce the highest outcomes. In inventory, the rule suggests that 20% of your inventory accounts for 80% of your profit.What are the most basic measures of inventory productivity? ›
Inventory productivity at its simplest can be defined as the amount of sales and gross profit dollars an inventory investment generates over a given period of time, usually a year. And the most basic measures of inventory productivity are inventory turnover and gross margin return on investment (GMROI).
ABC analysis is an inventory management technique that determines the value of inventory items based on their importance to the business. ABC ranks items on demand, cost and risk data, and inventory mangers group items into classes based on those criteria.How do you overcome poor inventory management? ›
- Centralized Tracking: Consider upgrading to tracking software that provides automated features for re-ordering and procurement. ...
- Transparent Performance: ...
- Stock Auditing: ...
- Demand Forecasting: ...
- Add Imagery: ...
- Go Paperless: ...
- Preventive Control: ...
- Measure Service Levels:
- FIFO — first in, first out.
- LIFO — last-in, first-out.
- JIT — just-in-time.
- Economic order quantity.
- Average costing.
- Cycle counting.
- ABC analysis.
- Perpetual inventory system.