8 Tips for Looking After Your Inventory
The measurement for inventory is referred to as inventory “turns.” This means keeping track of how often you sell your inventory in its entirety, or its financial equivalent. Calculating the number of turns you have on a monthly basis will help you to order just the right quantity of replacement stock.
Managing inventory helps keep your budget on track and ensures that you are neither overstocked or understocked. Overstocking may adversely affect operating capital, understocking may mean that your customer buys from someone else.
8 Tips for Efficient Inventory Management:
1. Assess the types of inventory that you have.
If you manufacture goods, you must ensure that you have sufficient raw materials on hand and sufficient capacity, machine and labour, to produce your finished stock. The quantities required for manufacturing are often driven by sales budgets initially and then a combination of budgets and actual demand to create an accurate forecast of projected demand for the coming 12 months. In order to meet these demand forecasts, you need to ensure that you have an adequate supply of raw materials and manufacturing resources available.
2. Tracking trends in the market and where your product is in its lifecycle.
Both affect the amount of inventory that you keep. If a product is not selling well or has come to the end of its lifecycle adjust the level of stock that you are holding. Hold more stock on hand for ‘fast moving’ products and less of those items that are not selling well or have become obsolete is important. Any items in a ‘slow moving’ list should be disposed of or written off.
3. Assess stock on hand.
Determine the amount the stock that you need to keep on hand and set a service level for each inventory items. Keeping too much stock on hand will increase storage requirements. Consider the costs involved of holding more inventory and whether that is justified or whether holding less stock and being able to manufacture or purchase additional stock is a more cost effective process. If the product can be sourced locally then keeping smaller quantities may be better, if the product has a longer lead time then keeping a ‘safety stock’ may be a better solution. Service levels are important and will be governed by how easy that product is able to be sourced from other suppliers, whether your customers will accept backorders or whether the stock is ‘fast’ or ‘slow’ moving.
4. Calculate stock reorder levels for each product, set a minimum and maximum stock level.
You will need to look at sales demand for your product and some of the other factors listed above to set your minimum and maximum stock levels. More stock should be ordered or manufactured when you reach your minimum stock level. The minimum stock level should be a period of sales volumes (perhaps 2 months projected sales plus the lead time). To set your maximum stock level you will need to consider projected sales volumes, competition from other suppliers for the same product, customer loyalty, turnover and value. If the item has a fast turnover and is of a lower value, you may elect to hold more stock than a slow moving more expensive item.
5. Consider First in First Out.
Develop and implement systems that ensure that when stock is picked for dispatch that the oldest stock is sent out first, often called FIFO (First in First Out). Using a computer system to identify where stock is held (bin locations) will assist with the picking process and should suggest the oldest stock first. If you have stock that has a ‘use by’ or ‘best before’ date, then this is vital to ensure that stock is managed efficiently.
6. Inventory can be managed manually or using a computer system.
Stocktakes should be implemented and run on a monthly basis, or more frequently, for a range of products each time. This ensures accuracy and can identify any errors that are occurring with the capture of stock movements. Ensure that you check the receipt dates for inventory from your suppliers, are the lead times that you have set accurate or is the supplier late or early with their deliveries? This can have a significant impact on the level of stock that you need to hold. Warehouse Management Systems (WMS) can also assist with the receipting and suggest where in the warehouse the stock should be placed.
7. Inventory ‘shrinkage’ is an area that needs to be considered.
Take steps to keep your inventory secure and deploy surveillance equipment and good documentation processes where peer reviews and checks are made frequently. Valuable stock should be stored in a secure location where access is limited to only a few individuals.
8. Install tracking systems to ensure that all sales of finished products are recorded accurately.
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