Effective inventory management is essential for any type of business that maintains a physical inventory. It helps businesses save costs and maintain profitability. Techniques that help businesses do this are part of inventory management best practices, that all business owners should be aware of.
The 5 topmost inventory management methods include the Fast, Slow, and Non-moving (FSN) method, ABC analysis, Economic order quantity (EOQ) method, Just In Time (JIT) technique, and Material Requirements Planning (MRP).
Read on to find out more about what effective inventory management entails and what the most effective inventory management techniques are.
What is inventory management?
Inventory management refers to a collection of techniques and methods that aid a business in tracking, controlling, storing, and delivering its inventory. These techniques play a vital role in helping businesses cut down costs and remain profitable.
Selecting and implementing these inventory management techniques effectively is essential for any business and every business owner should be aware of them.
The 5 Best Inventory Management Techniques
Here are the top 5 most effective techniques to manage an inventory that can be beneficial for your business:
1. Fast, Slow, and Non-moving (FSN) technique
The fast, slow, and non-moving (FSN) method is one of the most important techniques in inventory management. Essentially, it involves categorizing and segregating items based on their quantity and the rate at which they’re being used.
In this technique, inventory items are categorized as non-moving, slow-moving, or fast-moving.
2. ABC analysis technique
The ABC technique is the Always Better Control Analysis method. If this technique is implemented by a business, the items in the inventory are categorized into three classes, namely Category A, Category B, and Category C.
Category A items are those with high value but low sales. Category B items have a relatively lower value but relatively more sales. Category C items have the lowest value among all three categories and have the highest frequency of sales.
Here is an excellent guide that explains more about how the ABC technique can be used.
3. Just In Time (JIT) technique
The JIT method is a kind of management technique in which businesses only order and store a limited amount of inventory that is needed to meet the current demand. More inventory can be ordered later when the need arises.
This strategy helps businesses avoid the purchase of excess inventory and reduces insurance and storage costs.
4. Economic Order Quantity (EOQ) technique
The Economic Order Quantity (EOQ) is a technique that helps businesses analyze and discuss the amount of inventory that needs to be purchased at any given time. The technique factors in the cost and demand for a certain item and helps cut down purchase, storage, and delivery costs.
Check out this guide to find out more about the EOQ technique.
5. Material Requirements Planning (MRP) technique
The Materials Requirements Planning (MRP) method is yet another inventory management technique that allows businesses to operate to manage their inventory efficiently. It helps businesses decide the type, quantity, and time for ordering inventory items. This results in an efficient production process.
Automation of Inventory Management
Automation of this type of management can be a cost-effective and time-saving solution for businesses looking to streamline their operations and maximize productivity. Automating storage control can ensure accurate accounting and allow business owners to have more control over their storage levels. Automation allows companies to automate the tracking and reporting of stock levels, making it easier to forecast future demand. Automated systems can also provide faster responses to demand changes, invaluable for businesses with changing or volatile market conditions.
Additionally, automated systems require much less manual input, meaning employees are freed up from tedious administrative tasks allowing them more time to focus on other areas such as customer service or research & development. Automation can help an organization improve its bottom line by increasing efficiency, reducing costs associated with storage tracking and auditing functions, as well as minimizing the chance of costly errors resulting from manual misconfigurations.
Benefits of Effective Inventory Management
It is the process of organizing, ordering and tracking inventory items. It can offer a range of benefits, such as improved cash flow, lower costs, increased customer satisfaction and better control over stock levels. A successful system involves taking into account the cost of product purchases or production, warehousing costs, delivery and customer orders, as well as any other stocking activities. When implemented correctly and handled appropriately it has the potential to improve profitability while ensuring customer service level objectives are met.
These benefits include:
-Reduced carrying costs: Being able to accurately track which items are in lowest demand can enable businesses to scale back stock levels which lowers associated storage costs such as rent, insurance and security.
-Improved forecasting capability: Improved forecasting ability can result in reduced levels of stock holding by predicting future demand more accurately. This allows businesses to carry fewer items without effective supply-chain operations or compromising customer service levels.
-More efficient replenishment processes: By optimizing reorder points for each item it becomes easier to plan procurement processes in advance allowing organizations to avoid unnecessary waiting time and therefore increasing the efficiency of supply chains operations.
-Reduced shrinkage rates: Careful tracking can help identify unauthorized use or theft within the system enabling organizations to better deal with this issue thus saving them money on unplanned losses.
-Better margins on sales: Understanding what items are beneficial for profits allows businesses to optimize pricing structure accordingly resulting in higher margins when selling them off later on down the line.
In conclusion, it is a key factor in successful businesses. There are many strategies and techniques to help you maintain a successful system. These include proper stock control, re-ordering points, batch and lot control, seasonal requirements, min-max systems and cycle counts. You can also use the latest technology to enhance your inventory management system such as Point Of Sale (POS) systems and enterprise resource planning (ERP) software.
By using these strategies and techniques effectively, businesses can reduce costs associated with storage, storage maintenance, losses from theft or shrinkage and disruptions caused during peak sales times. Proper management of your inventory will help you remain competitive in the marketplace by allowing for better customer service and higher profitability levels.