Supply Chain Inventory Management | 3 mins read

Best Practices for Inventory Management in Supply Chain Control

best practices for inventory management in supply chain control
Jin Hyun

By Jin Hyun

The supply chain is made up of complex, connected processes. Supply chain inventory management is a key element that businesses should optimize for effective operations.

The supply chain is defined as the greater process of creating and selling goods, including all stages of gathering raw materials and manufacturing components for the eventual finished product.

Without an effective supply chain process, a company is unable to meet customer demand by fulfilling orders in a timely, accurate manner. When the supply chain is correctly managed, it will optimize costs and create a faster cycle of production. With a streamlined process, the likelihood of buyers becoming returning customers to the business is estimated to be 71%.

Inventory management is inextricably linked with the supply chain, not just a component part of it. If the inventory isn't recorded, organized, and handled efficiently, this disrupts the entire supply chain through ineffective procurement schedules and increased possibilities of shortages and overstocking.

This is why it is essential for companies to examine inventory management processes in order to create an effective supply chain system.

Inventory Management Defined

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This essential part of internal business operations describes the process of handling and organizing products and/or materials that businesses sell to consumers. It is a complex process, including elements such as controlling purchasing from suppliers, maintaining the right inventory levels to meet future demand, assessing how much stock to display to customers, as well as the handling of inventory to fulfill subsequent orders.

Three key steps of inventory management are-

1. Inventory Purchasing - Materials or units are purchased from suppliers and brought to the company's warehouse storage facility.

2. Inventory Storage - Holding the inventory until it is needed for either order fulfillment, or to be taken for further manufacturing (in the case of raw materials being purchased from the supplier).

3. Inventory Profiting - Controlling the levels of products for sale. Pulling the finished units from storage to replenish storefronts and fulfill orders for customers.

Effective Inventory Management in the Supply Chain

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For the most effective supply chain control, there are essential steps that companies can take to create clear and accurate inventory management processes. The following tips can be followed by even small businesses that are managing inventory as part of their sales process, no matter the industry they're in.

1. Mindfully Choose Supply Chain Partners

The relationships that you have with suppliers, wholesalers, and manufacturers will directly impact how you experience the entire process of ordering and receiving goods. When choosing suppliers, think beyond the product and think long term.

Focusing only on the products that you want, without taking into account the supplier's reputation is not a strategic business move. Trust is essential for a mutually beneficial vendor relationship and businesses need to be able to trust that the supplier will meet their needs, honor agreements, and ultimately allow the supply chain to run smoothly.

2. Examine Lead Times

The lead time' is an inventory management term that references the amount of time it takes from ordering the inventory until the company receives the finished goods. When examining lead times, a company should take into account the supply delay (time for the supplier to send the goods) and the reorder delay (extra time until you create the next order for the goods).

If there are changes in lead times due to seasonality or economic conditions, businesses should shift the inventory management processes accordingly. This is an essential part of meeting demand and improving customer service.

3. Consider Seasonality and Holidays

Especially if a company works with international suppliers and ships globally to consumers, it's important to keep the effects of seasons and holidays in mind when managing the inventory supply chain process.

Some months of the year will require different inventory stocking decisions, such as back ordering to fulfill higher demand (which then requires more labor to manage that inventory). When major holidays are approaching, businesses should take into account any factors that could delay production, such as if suppliers and manufacturers have different operational and delivery hours during these times.

4. Cloud-Based Software

When handling multiple relationships with suppliers, manufacturers, and wholesalers, a company's inventory management system needs to be streamlined in a way where there are accurate, real-time updates. Cloud-based software allows purchase orders, inventory amounts, and other communications to be seamlessly shared without delay.

There is also more transparency in inventory costs between all parties when documents are shared (rather than each party having their own versions of expense data). Additionally, cloud-based software prevents data loss if systems break down as it is stored on the cloud for added protection.

5. Use Forecasting

Inventory forecasting is a way to predict demand and plan for the right quantities of goods needed to effectively fulfill orders. Based on historical sales data, seasonality, and economic conditions, forecasting is a necessary inventory management technique that management should implement for increased supply chain control processes.