Inventory is one of the most dreaded words in the retail sector. It involves lots and lots of counting, reconciling, physical inspection, planning, and forecasting. It’s a simple equation, you buy goods paying money, and you get that money back plus some profits after selling it. The problem lies when the equation is not balanced. If the company fails to sell all of its stock, they will have liabilities lying around. On the other hand, if they cannot cater to customers’ demand and understock, that’s a lost opportunity. So this equation needs to be balanced all the times to optimize revenues. Holding up inventory ties up much needed cash for other business functions. As a result, good inventory management is an absolute must in order for a company to prosper.
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Setting par levels
One of the most followed inventory management technique is setting up par levels for each product. It is the minimum amount of stock of a particular item to be had at all times. Whenever the inventory dips below the par level, its an indicator to order more of that item. Mostly, managers order the minimum quantity, which gets the stock above the par level. This par level also varies as per how quickly the product sells or how long it takes to reorder. Creating a par level will systemize the process of ordering in the future. As a result, even staffs can make decisions on ordering based on par levels.
FIFO stock method
FIFO, short for first in, first out, is an essential principle in inventory management. As per the rule, the stock that is bought first gets sold first. As a result, the company will mostly have fresh stocks. This rule is even more critical when it comes to perishable goods as it protects the product from spoiling. Another advantage of using FIFO method is that company can cycle through batches faster and get rid of old stock as packaging design and features often change over time.
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Manage relationships
Adaptability and speedier operations are the keys to successful inventory management. People handling stocks should be quick enough to return a slow-selling item, restock fast selling product, temporarily expand storage space, or manage the relationships with suppliers. Having a good relationship with the supplier helps a lot as they will be willing to negotiate on MOQ, which eases inventory pressures. The communication with the supplier should be smooth, and information regarding seasonality and sales can be shared to synergize operations.
Contingency plan
The act of inventory management is not static. Multiple problems can arrive at any time for which companies may not be well-prepared. For instance, situations of sales spike, cash flow shortfall, inventory miscalculation, product shortage, can all cause panic for an inventory manager. However, businesses should have a contingency plan in place to be able to react to such situations quickly without causing any hiccups in the inventory management process.
Stock auditing
Today, digital systems have replaced most of the manual paper-based systems. Managers often rely on software and reports to know the stock levels. However, it is important to verify the numbers shown on the screen with the numbers that are actually in the warehouse. It can be done in terms of physical inventory count, spot checking, or cycle counting.
ABC method
Call it the 80:20 rule or the ABC method; it is evident that some products need more attention than the others. Using ABC analysis can help businesses to prioritize inventory management which ensures that vital items are never ignored.
