Successful retailers, manufacturers, and wholesalers from across all industries have developed inventory management practices to ensure that they are stocking the right products at the most opportune level, at the right time.
Maintaining optimal stock levels involves consistent inventory tracking and monitoring of market demands. With a well-defined inventory strategy, companies can operate efficiently, improve sales, and minimize any delays in the supply chain.
8 Key Strategies for Inventory Optimization
Companies can improve their inventory management by implementing these strategies.
1. Automate Management Systems
A manual inventory management system can oftentimes lead to human errors, such as miscounting. It can also be time-consuming and unproductive for staff to have to frequently conduct inventory counts when they could be at the front of the store, helping customers. These inefficiencies can lead to lost sales and a negative customer experience.
To prevent this, companies can implement an automated inventory system that enables staff to quickly monitor their stock levels in real-time and track their sales. Inventory management software also has ordering optimization, which is a capability that streamlines the purchase order process and alerts staff when stock levels are running low.
Advanced solutions are also cloud-based, therefore, enabling managers to view their inventory and make quick adjustments at any time or place.
2. Assess Data Analytics
Having access to real-time data analytics related to inventory, such as sales forecasts, will enable managers to make accurate and informed decisions about replenishment. For example, data reports that provide insight into consumer demand allows business owners to decide if inventory needs to be increased or decreased.
This form of predictive data analytics has many benefits, such as-
- Increases in cash flow because of smart procurement decisions
- Enhanced customer satisfaction due to availability of highly-demanded products
- Improved profit margins by reducing instances of overstock
Businesses can also gain visibility into their consumer base with sales data. This is useful for creating targeted marketing campaigns and for identifying inventory that aligns with their customers' interests.
3. Select the Right Inventory Software
Companies have different needs; therefore, choosing the right software and features that match specific business requirements will effectively improve efficiency. Many advanced systems typically have different capabilities that organizations can choose from, such as-
- Manual Systems - These simplify inventory management by allowing users to do shelf-to-sheet counts online. This feature is recommended for small companies that are making a transition to cloud-based tools from paper-based inventory count.
- Barcode Scanners - This feature integrates barcodes into the inventory system and enables companies to track large volumes of products. Barcode scanners can also connect to a store's point-of-sale platform and can update stock levels as each item is scanned.
- Advanced Radio Frequency Systems - These are popular among large companies because they can quickly and automatically identify and track product tags using electromagnetic fields.
4. Utilize Mobile Technology
Inventory management systems with a mobile interface will allow warehouse staff and managers to control stock and oversee shipments remotely at any time.
It can also help sales representatives examine current inventory data and request purchase orders when stock levels are low at their store. This capability will boost efficiency and help companies provide better customer service.
5. Accurately Forecast
Forecasting is a crucial component of inventory management because it helps managers make informed projections and purchases.
With accurate forecasting, companies can learn more about their business, such as whether specific holidays or seasons affect their sales, if a promotion will be effective in increasing revenue, and which inventory items are the most profitable.
The two types of forecasting models businesses commonly use are-
- Qualitative Forecasting - This method uses historical sales data to project future consumer demand. Accuracy for this form of forecasting depends on how much data a business has.
- Qualitative Forecasting - This approach uses information, such as market forces and expert knowledge, to predict demand.
6. Focus on Demand
Also referred to as the pull strategy, this form of inventory management focuses on customer demand trends. When customers pull or buy products from a company, managers will then supply the demand.
This method works well for companies that want to keep inventory costs at a low level. The downside of this strategy is that, since consumer demand trends fluctuate quickly, it may be hard for the business to promptly adjust its stock to keep up. This can lead to overstocking or understocking, which will negatively impact profit margins.
7. Replenish Based on Projections
This method involves creating or purchasing inventory based on the company's projected demand.
Known as the push strategy, this approach will keep the costs of operations low since a large volume of products is created in one order. A potential drawback of using this strategy is if the actual demand does not meet forecasted levels.
8. Deliver Just in Time
The just in time (JIT) strategy is when companies create goods as they are ordered by consumers. By supplying to actual demand, management will increase efficiency, reduce inventory costs, and decrease waste.
For this method to work successfully, manufacturers and wholesalers need to have the raw materials and products on hand. Otherwise, there may be delays in delivering the goods to end-users.
By incorporating an inventory strategy that best aligns with a business's needs, executives can protect their bottom line and efficiently meet consumer needs.