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Inventory is essential in organizations as it facilitates the planning of the production line. It also helps you manage your resources and provide a platform for measuring quality and productivity.
However, most businesses still use traditional ways of managing their supply. Research shows that 24% of startup companies use pen and paper to monitor their inventory. This often leads to errors in data collection and poor control over stock levels. In other words, these organizations are prone to running out-of-stock or overstocking, which wastes time and resources.
This is why 75% of supply chain management experts intend to enhance their inventory management practices. This helps them identify bottlenecks in the process, reduce wastage, and increase profits. That way, they’re able to meet customer demand more efficiently and make better use of their scarce resources at the same time.
The following is a list that’ll help you ensure the effectiveness of your inventory management strategies:
Calculate WIP Inventory
Work-in-progress or WIP inventory is the cost of goods being produced or worked on. It’s also known as finished goods inventory that has yet to be completed but not yet shipped out.
The purpose of this inventory is to track the time spent on a particular project and how much it’ll cost to complete it. It helps you manage your project schedule, costs, and deadlines.
To calculate it, you can use this formula: “COGM = Total Manufacturing Costs + Beginning WIP Inventory – Ending WIP Inventory.” This will help you identify the exact number of inventories and know how much it’ll cost to finish all your products. From there, you can figure out ways to optimize your supply chain to ensure that it drives more revenue.
Forecast Product Demand
Demand forecasting is vital in inventory management as it helps determine the amount of inventory needed and how long it’ll take to produce that inventory. With proper forecasting, you may avoid overstocking your shelves with items people want but don’t buy. You can do accurate demand forecasting with a good cloud MRP software and manage your inventory level efficiently.
For example, you’re selling a product that requires large amounts of space on your shelf and no one is buying them. Then, you could be overstocking the shelves with products that no one wants or needs. This causes unnecessary costs for you and wastes materials and time spent on unsold stock.
A forecast should include product demand history from past and current sales volume and estimated future demand from projected sales volume. That way, you can determine how much inventory is needed to meet demand at any given time without wasting resources.
Establish Proper Warehouse Management
Warehouse mismanagement is a major cause of inventory loss. For instance, you might need better planning and adequate systems that allow the accurate monitoring of the warehouse. Poor planning can also be caused by simple errors in your inventory system or by having too many items on hand. In either case, this hurts the efficiency of your business.
As such, you may improve your warehouse using technology like warehouse management systems. A study shows that 60% of these systems now have mobile capabilities, enabling real-time inventory monitoring, whereas it reduces the average order picking time by 30%. This results in less inventory loss and higher profits for your business.
Implement A Cycle Counting Program
An inventory cycle count is where you’ll take a set number of items out of your inventory and re-enter them. This aims to ensure that there are no discrepancies between what you have in the system and what you’re selling.
You can implement this using statistical sampling methods to identify inventory discrepancies and then adjust the quantity of product on hand accordingly. These include control group, hybrid, objective counting by surface area, or opportunity based. All these can help you improve your efficiency and accuracy while reducing costs associated with poor inventory management.
Embrace Lean Manufacturing
Lean manufacturing focuses on reducing waste and improving efficiency. It’s a process that aims to improve the efficiency of a company through continuous improvement.
Most companies do this by investing in innovative factory initiatives. Research shows that 10 to 12% of them receive gains in areas like labor productivity and manufacturing output. Meanwhile, 75% of manufacturers decided to use cloud technology before 2021. This proves that it’s possible to implement lean manufacturing techniques regarding inventory management. If you’re able to adopt this approach, you’ll be able to reduce inventory costs and increase profits at the same time.
Key Takeaways
Inventory management is a critical part of your business. Without it, you can’t increase sales, reduce costs, and maximize profits. Not only that, but you’re also throwing away opportunities on missed sales when you run out of stock. On the other hand, you’re wasting resources if you overstock, especially if you’re selling perishable goods.
But with proper inventory management practices, you can control costs and make more money in the long run while boosting operational efficiency. In addition, you can ensure that you meet the demands of your consumers, making them have a satisfying experience with your brand.
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