If you’re managing inventory or thinking about scaling up your existing inventory management process, take a moment to consider some inventory management best practices and how you might benefit from them.

What is Inventory Management?

Inventory management covers all aspects of managing inventory, including:

—purchasing supplies

—production of goods

—warehousing

—sales

—tracking shipments and returns

—reporting and analysis. 

Inventory control is a subset of inventory management. It’s more specifically about warehouse management, stock control, quality assurance and maintaining stock at optimum levels to meet customers’ demands.

Why an Inventory Management System is Important to Your Business

Almost anyone involved in business would acknowledge the importance of the supply chain that begins with raw materials and ends with customer satisfaction. 

With any inventory management system — whether just a manual one for small business or a highly complex supply chain management system for global businesses — there is much potential for things to go pear-shaped.

Consider some of these potential inventory hazards:

—spoilage of stock

—dead stock

—untenable storage costs

—poor cost-efficiency

—missing or lost inventory

—reduced sales 

—negative effects on customers

—surplus stock.

On the other hand, inventory management best practices can reduce your costs, improve your cash flow, help you analyse and forecast sales, improve customer retention and boost profits.

Key Factors for Selecting Inventory Management Software

These days there are many choices of inventory management software. Rather than reinvent the wheel, business owners and managers can benefit from adopting a software solution that suits their specific needs. Many of these can be tailored and customised to fit their exact requirements. 

When choosing good inventory management software, consider the following key factors. 

Prioritise high demand purchases 

Since not all of your products sell in equal numbers, it’s vital for proper inventory management that you prioritise orders. 

Following the 80/20 rule, you’ll get the most benefit by putting your time and energy into optimising products that are in high demand.

To assist, one inventory system that’s popular is known as ‘ABC Analysis’. The system involves ordering your inventory according to a hierarchy — from the good in highest demand to those with the lowest:

—A: the most in-demand stock, reordered often

—B: the next level of demand, with monthly reordering

—C: low demand stock.

Using ABC analysis will help you optimise warehouse space and organisation, as well as streamline order fulfilment.

Make inventory management software work for you

Say goodbye to managing your inventory manually. There are enormous benefits to be had from employing the latest software to reduce errors, improve efficiencies, save time, money and energy.

Automation

There are huge gains to be made by automating everything you can in your inventory management system to reduce manual handling:

—customise the shop platform for B2B and retail customers

—set-and-forget purchasing and order processes

—employ multiple sales channels with ease

—apply bulk actions for high-order volumes

—auto track revenue or sales goals.

Barcodes/QR codes

Using barcodes and QR codes can lower your operating costs and provide a rapid return on investment (ROI): 

—rapid collection of inventory info

—elimination of manual data errors

—efficient documentation and reporting

—automatic inventory updates

—facilitating inventory movement within or across warehouses

—identification and auto reordering of stock levels. 

RFID (Radio Frequency Identification)

RFID tags can store more information than barcodes and can be passive or active (battery powered) units. 

They are a vital security tool that can protect high-value items like pharmaceuticals, and are often placed near high-risk points in your warehouse, such as at exits.

Create an inventory system

Every business needs to adopt some kind of logic to its inventory handling.

If you’re selling perishable goods, you’ll almost certainly use a First-in, First-out (FIFO) system for inventory turnover. Otherwise, you’d lose too much inventory to spoilage.

If you’re selling non-perishable goods, you probably would use a Last-in, First-out (LIFO) system to avoid multiple handling of products in the warehouse. But this may also be affected by seasons, fashion, fads and other factors. 

Consider your business needs carefully when you set up a warehouse and employ warehouse management systems and inventory control processes that benefit you.

Adopt Vendor Managed Inventory (VMI)

One type of effective inventory management is VMI. This is when vendors agree to manage their inventory, often for example, when a sales rep looks after specific products. A beverage company rep may check stock levels, manage deliveries, reorder stock and replenish a warehouse.

Another option is to allow a vendor access to your inventory data to manage products that may be stored in another warehouse or their warehouse. 

You don’t necessarily have to use your own warehouse, with all the capital and operating costs that entails. It may be better for you to choose to outsource your supply chain management to a third party logistics (3PL) specialist.

Optimise quality control

It should go without saying that inventory management best practices include quality control. Managing your warehouse space, inventory turnover rate and supply chain to optimise stock levels will pay dividends.

Inventory management software will help to discover new ways of improving quality control. As will enhancing your systems for customer feedback, whether by text messaging, follow-up emails or social media surveys. 

Responding to sometimes rapidly changing consumer trends can improve your customer satisfaction ratings, and so will extra attention paid to speeding up delivery times.

Plan for emergencies

‘Hope for the best — plan for the worst’. 

That motto should be engraved over every warehouse door. You need a contingency plan or two for emergencies, which could come from anywhere to affect your supply chain:

—distributor or manufacturer stock shortfalls

—inventory errors leading to shortages

—sales spikes 

—oversold stock

—cash flow affecting stock levels

—slower sales leaving warehouse jammed with goods.

Having an inventory management system or inventory management software does not by itself protect you from unexpected events. It should reduce the likelihood of those events by giving you greater inventory analytics and insights into inventory levels. And it should enable you to respond faster to any crisis. 

But ultimately contingency planning is just a good business strategy to minimise risk.