7 Inventory Management Techniques That Will Save You Lots of Money
Inventory management is not easy on the mind. Holding inventory ties up a lot of cash and thus various factors should be considered in order to manage and organize the farrago of products and suitably make it available on time.
Handling inventory is challenging. Doing everything according to protocol does not always ensure smooth operations. Relationships with suppliers are undoubtedly an influencing factor in your performance. Working with trusted suppliers who understand the frequency of sales and its dynamics can help you out from unpredictable situations, further, it’s highly beneficial if they are highly competent and compatible with short notices.
2. The minimum amount of product in Inventory
Although this point does require a certain amount of experience and research, it is instrumental in making ends meet in dire situations. This practice encourages you to hold the minimum level of inventory at hand. When the stock depletes from this level, it’s a signal for you to make the order for more. Initial level will be difficult in determining but once you get hold of the sales and demand process, it will stimulate your performance.
3. FIFO (first-in-first-out)
For all those who have studied business this acronym surely rings the bells. Let’s put some spotlight on this:
This method essentially focuses on selling stock which is oldest first. Perishable goods are an inventory manager’s nightmare. It cannot be stored for long. Also, with changing trends, designs and needs, something held for too long may out-turn with depleted value.
A mélange of products is indecision’s ancillary, many times being a driving force for it. The ABC analysis will not only help in mitigating this issue in the short run but also successfully manage it with polished judgmental abilities in the longer run. Characterize products accordingly for a balanced and well-informed decision making.
A – High value of products with a low frequency of sales.
B – Moderation value of products with a moderate frequency of sales.
C – Low-value products with a high frequency of sales.
Category A requires constant attention due to high financial effect and sales undefined. Category C requires the least deliberation due to regular sales but smaller impact. Category B, as you may have guessed is in the middle of the attention-demanding products.
5. Carrying Cost
The purchase price is not the only amount, emptying you out of your pockets. On the top of that, costs of storage, insurance, personnel, depreciation, damage, processing and taxes burden you heftily. A tactical assessment should be made as too much inventory will leave less for working capital, cash flow will decrease and earning profit will become laborious. Determine the ‘when’ and how much’ aspect of products to be kept to avoid overflowing of products and to facilitate management of requirement effectively.
Planning for the future events, keeping in mind the past, for an error-less projection of work to perform. Accurately assessing demand and performing likewise, keeping in mind all the affecting factors is cumbersome. Things such as ongoing trends, last year’s sale at the same time, promotions, guaranteed consumer base, performance rate and many more factors should be taken into account.
You can also focus on dropping inventory management entirely and let the manufacturers and wholesalers take care of it. This is regarded as a reliable option for carrying costs, trend rates, and inventory level management can be left over to third parties for better outcomes.