What Techniques Can Be Effective For Successful Inventory Management Optimization
There are many ways to ensure you are on top of your inventory, here are three of the best ways for optimal inventory management.
1. Use ABC Analysis to Prioritize
You may already be familiar using ABC analysis. The idea is to effectively prioritize your attention and resources where it makes a difference most. According to the Pareto Principle, 80% of overall inventory consumption comes from only 20% of your total items. This is where ABC analysis becomes a useful way for identifying how to make your inventory management as effective as possible.
Splitting your stock into two categories would be a little too simplistic to work so this strategy divides your inventory into three types based on stock value, annual consumption and cost significance.
Here`s the way categorization should look:
A: Items of high price (70%) and some in number (10%)
B: Items of moderate worth (20%) and moderate in number (20%)
C: Items of small value (10%) and heavy in number (70%)
For creating a guiding principle on how to best use best inventory management resources and funds, each product now has a new, more genuine value that translates directly into a priority level. Naturally, the items that need the strictest control are those that are high in financial value and low in number, they will be your `A` things. It may sound like presence of mind but until you have categorized every item in your stock, you may well find you are not optimizing as well as you`d thought.
Learn why precise inventory management is crucial for retailers.
2. Automate Inventory Replenishment
While some seasonal trends can be clear and you may have some great intel on your customer’s buying cycles, there will always be some outliers that can truly throw a spanner in the works. Despite of certain fluctuations in demand appearing to be quite random, given enough data, it is often possible to predict trends that manual reporting and your standard business intelligence sources have missed. With the right software, historical sales data can remove that guess workout of inventory and make sure that order quantities are constantly optimal through automated analytics and replenishments.
3. Just In Time
Just in time (JIT) is still considered by some to be a risky business because your stock will only be ready just before it should be distributed or sold. However, if you have robust analytics and automation functionality in your ERP, these risks are minimised. It is particularly useful for those things that you don`t have sufficient time to focus on too much - but once you realize you can confide in the system, it can be just as useful for your higher value items.
Having less inventory sitting around, unnecessary tying up cash and potentially becoming spoiled or obsolete of date before it is sold, is a risk in itself. Solid research and analysis on demand levels and seasonal trends, along with reliable supply chains and logistics, make JIT always feasible for an increasing number of businesses.