Inventory Management Techniques for Supply Chain Issues
Inventory management is a critical part of ensuring products are in the right place at the right time. But what is it? Inventory management is the process of ordering, storing, and profiting from inventory, from raw material to finished product.
With effective inventory management practices, the correct amount of production materials are purchased to make an amount of product in alignment with current (or future) demand trends.
Then, production materials, as well as finished products, are stored until it is time for use or shipment. Ideally, this process is organized and takes up only as much warehouse space as is needed to meet demand and effectively mitigate risk.
At the profiting stage, inventory is managed by controlling the amount of products available for purchase. It’s at this stage that products are picked for fulfillment and shipped to customers.
At any stage of this process, transparency and visibility are critical factors to success, and the addition of data and automation ensure smooth inventory management across a changing landscape of supply chains and consumer demands.
This is especially true when conditions are particularly complex or volatile, as it is now in the wake of the Covid-19 pandemic and its expansive and rippling impacts on supply chain and inventory management at every level of the process. Supply shortages are mounting alongside regulation-induced delays, data silos among US ports, massive increases in consumer demand have all contributed to the bottleneck effect that has skyrocketed prices and slowed shipping rates to levels unforeseen by most.
Why Is Inventory Management Important?
Inventory management is a key make-or-break topic for businesses. Effective inventory management can result in a flourishing business that grows quickly, can weather supply chain disruptions, and generate profit with as little loss and risk as possible. However, poor inventory management can result in large profit losses and has even caused businesses to fail. In these businesses, supply shortages and inventory excess dominate their history, causing less-than-desirable effects on a balance sheet.
When handled well, inventory management results in effective fulfillment and an enjoyable customer experience because consumers are able to access the products they want at desirable speeds and prices. Excess inventory cuts into profit margins by increasing overhead which can drive prices higher while too little inventory means consumers aren’t able to get products they want at the peak of their demand.
How To Overcome Inventory Challenges
When managing inventory, it is important to consider supplier lead times when making purchasing decisions. Factoring in peak times, holidays, and other lead-time information helps purchasers make more informed decisions to help keep inventory in a balanced “sweet spot.”
Factoring in lead times is especially beneficial in conjunction with automation software that utilizes AI and machine learning because this type of predictive intelligence can offer real-time insights into supply chain changes. Factoring in geopolitics, weather, and natural disasters, and any other events that may impact supply or demand, lead times become a flexible variable alongside an ever-moving target of consumer demand.
Carry Safety Stock
As many businesses have realized amidst supply shortages imposed by the Covid-19 pandemic, safety stock can be of critical importance in times of supply chain disruption. There are a variety of methods to calculate safety stock amounts, but it is important for businesses of all sizes to consider which items are essential to continued business functionality and prepare ahead of time for a variety of scenarios.
Use Automated Inventory Control Systems
Automation has a place in nearly every corner of inventory management. Rather than try to maintain static, analog systems, automated inventory control systems offer a dynamic look at a business’s current state of affairs. This simple but highly impactful change can boost inventory visibility and overall efficiency. ERPs and Warehouse Management Systems (WMS) are both excellent means—often used in conjunction with one another—to bolster automation efforts.
Consolidate Multi-warehouse stock
When businesses utilize more than one warehouse location, the distribution of inventory amongst those facilities can make massive differences in inefficiency and, subsequently, profit margins. This is another key arena for automation to shine. Machine learning is able to predict and advise on when and where to redistribute inventory across warehouses for optimal efficiency—again, in a dynamic way that can deliver results continuously.
Conduct Inventory Audits Regularly
It’s hard to manage what you don’t know you have. Inventory audits help businesses understand the veracity and accuracy of their inventory tracking techniques. These audits help ensure information is up-to-date and as accurate as possible. Methods for completing these audits include having workers scan SKUs with a barcode scanner to match against the inventory management system. Spot checking—or choosing a specific item to manually inventory and compare against inventory systems—is a common method of inventory audit.
Set Reorder Points
Calculating a reorder point tells businesses the exact point at which inventory should be reordered so that it doesn’t not fall below a certain level. That level will depend on risk tolerance as well as the importance of a particular type of inventory (e.g. is it critical to continued business?) By having set reorder points, businesses can help avoid supply shortages and undue complications caused by running out of a particular item.
Maintain Positive Supplier Relationships
Without suppliers, there is no business. Staying on good terms with suppliers helps ensure quality product delivered quickly and reliably, and may also open opportunities for data-sharing which can be of immense benefit to everyone involved.
Let them know when you expect substantial demand changes or any other updates to your needs. They will be grateful for the information and better prepared for changes.
Use FIFO Method
FIFO stands for first-in-first-out and is simply a shorthand way of saying to use the oldest inventory first. Think of it like stocking bread at the grocery store. Stockers don’t just shove the new bread on the shelves inf ront of what’s there. That would result in lots of stale bread in the back and tons of wasted product. Instead, the oldest bread moves to the front and the new bread is placed behind it so it is available in case there is a surge in demand, otherwise it will simply rotate to the front as new stock arrives.
This is a form of categorical analysis that works as follows:
A: high-value, low-quantity goods
B: moderate-value and moderate-quantity goods
C: low-value and high-quantity goods
These categories are then able to be managed separately in an inventory management system, since each category of product should ultimately have a different size of buffer inventory.
Shipworks offers warehouse automation and shipping automation solutions that are scalable from small, single-warehouse businesses to large, high-volume shippers in a multi-warehouse setup. With many integrations as well as courier deals, ShipWorks can fit into your pre-existing system while optimizing efficiency and boosting profit margins.