As inventory items change over time, what began as a well-planned, well-organized system can become disjointed, disorganized, and out of control. There are multiple theories on how to organize inventory items. Regardless of how your warehouse is organized, the latest in inventory control software can help determine how best to control your stock.
Good inventory management is very much a matter of predicting market demand, improving means for forecasting demand, and smart management of the supply chain so that you’re never caught off-guard when a supplier can’t deliver what they’ve promised.
The benefits of smart inventory management
When inventory is managed properly, less of your inventory spoils goes out of date or becomes obsolete. Dead stock that isn’t necessarily expired but is, nonetheless, not salable takes up valuable space in your warehouse. But space is just part of your worries. Dead stock ties up your capital, limiting your ability to use your capital for other matters. Since it’s difficult or impossible to offload dead stock at full price, you face having to sell it at a loss or for scrap value.
Both viable and dead stock come with considerable storage costs. Running out of inventory may lead to costly production downtime. Keeping plenty of inventory on hand assures that you can meet your customers’ demands even when there’s a hiccup with one of your suppliers. Keeping too much inventory ties up your cash. It’s a never-ending balancing act.
How to achieve optimal manufacturing inventory management
There are some best practices that you can use to optimize inventory management so that you can assure customer service and keep productivity high, without having to over-invest in stock that just sits there, dying.
- Establish a baseline for low inventory. The amount of inventory you should keep on hand depends on how long the stock lasts, how quickly you go through it, and the solvency of your suppliers. The baseline might be a week’s worth of stock or a month’s worth, but it should make sense given how frequently the item is unavailable, how long it keeps, how quickly you run through stock, etc. Set a threshold which you don’t drop below. When stock threatens to dip below the threshold, reorder. This effectively ends the “seat of the pants” method of inventory management.
- Adhere to the “First In, First Out” (FIFO) rule of inventory management. Make sure that the oldest inventory is used first. While usually applied to perishable stock, it’s also an excellent strategy for non-spoilable goods, because it assures that those items turn before they are replaced by new versions or new packaging designs.
- Manage supplier relationships. Say your supplier does have a problem. Maybe their raw materials were affected by recent storms or difficulties in logistics. Perhaps their operations were shut down and they’re running behind. Temporarily they have only a limited supply available. Will they sell it to the customers who are always griping and complaining? They’ll likely offer it to the customers with whom they have the best relationships. Pick up the phone from time to time and check in with them. Personalize supplier relationship management. You will be more likely to have better access when their supply is limited and will be in a better position to negotiate prices and terms when all is well.
- Manage customer relationships. When you have a solid relationship with your customers, they’re far more likely to be okay with some occasional bumps in the road. Manage your customer relationships like the most valuable things you’ve got, because they are.
- Think in terms of “worst case scenario” and have contingency plans. Have a plan for a supplier that suddenly goes out of business or a situation like Hurricane Matthew when logistics can’t get your supplies to you as usual. Make sure you have enough inventory to keep on going even when something goes wrong in your supply chain.
- Conduct regular inventory audits. Don’t wait until year end to reconcile your physical inventory and book inventory. Conduct regularly-schedule cycle counts. Inventory management is a continual process, not a once-in-awhile affair.
Inventory management shouldn’t be a mad dash at year end
Effective manufacturing inventory management is a practice that you must continually develop and improve. Better systems and processes make it much easier and take the guesswork out of managing inventory. Contact us to learn how we can work together to create an inventory management solution that is right for your business.