September 9th, 2022
How Inventory Management Helps Improve Supply Chain Visibility
Table of Contents
Shrewd Inventory Management Drives Effective Business Performance
As advocates for smart inventory management as a primary business objective for any firm with ambitions of success in Britain, our latest article helps ensure you’re prepared to make the most out of the goods, space and resources at your disposal – and how best to reform and reconsider your practices to help shore up any inefficiencies in your workflows.
The millennia-enduring process of inventory management refers to the process of tracking and controlling the flow of goods used to support critical business processes right from production to the final sale. As such, it is a fundamental building block in every supply chain cycle since it is the cog that determines whether everything else will fall into place or not.
Why is Inventory Management Important in Business?
The importance of inventory management can never be undermined in supply chain management as it is the most efficient way to ensure a perfect balance of supply and demand and guarantee better customer service while avoiding problems such as:
- Overstocks and out of stocks
It is critical to maintain optimum stock levels to ensure operational efficiency and ease warehouse management. This calls for having a full grasp of all your inventory and aligning their flow with your operations, warehouse capacity, and company needs.
- Mis-shipments and mispicks
Effective inventory management will save you from the wasted labour, logistics costs, and time spent on rectifying errors that lead to wrong shipments and mispicks by improving your quality control procedures, leading to better warehouse management.
- Theft and spoiled goods
Poor inventory management will not only leave you with either inadequate or excess inventory, but also enhances the risks of spoilage and internal theft cases due to the low visibility of your stock.
Typically, inventory management works by:
- Enabling you to plan and forecast more accurately
Once you optimize your inventory processes, you can leverage the power of data to improve raw material and product flows while minimising your inventory holding costs.
- Providing you better control of your inventory costs
Knowing which products are most valuable to your company and those that only eat up shelf space, will enable you to keep the right inventory levels. This will ensure product availability across multiple channels without the risks of carrying less inventory or burden of overstocking your warehouses.
- Boosting business productivity
Efficient inventory management will always ensure you have the required products at the right time and in proper quantities. This will significantly boost your company’s productivity and efficiency as all operations will be aligned right from the purchase of raw materials to the delivery of finished goods.
- Improving delivery time
Effective and accurate inventory management will help avoid unnecessary delivery delays since you will always maintain the right stock levels that take into account the current and future market demands.
Popular Inventory Management Techniques
It takes well-managed inventory management process to attain the results you desire, calling for the adoption of the right techniques in your operations. The most popular inventory management methods that you can utilise today, include:
Periodic inventory management
This method of managing inventory involves updating your stock inventory after a specific time frame. Typically, a periodic inventory system will require your warehouse employees to regularly conduct inventory valuation before they update the general ledger.
Perpetual inventory management
This inventory management technique involves actively tracking of goods as they move from one point to another. A perpetual inventory system is widely used where better inventory control is required, especially when their is rapid flow of raw materials, parts, or finished goods.
Economic order quantity (EOQ)
This inventory management method is used to determine the optimum order quantity of inventory that a company needs to purchase to keep its operations running while reducing your inventory carrying and supply chain costs. The goal of this formula is to ensure you do not tie up your revenue in inventory by minimising buying without impacting your production process.
This is an inventory categorisation method that involves creating three distinct classes of your stock and controlling each type depending on their value and overall inventory cost. The categories used are:
- Category A for the most valuable goods
- Category B for middle-range goods that are neither the most or least valuable
- Category C for the least valuable goods
Minimum order quantity (MOQ)
This inventory control method primarily aims to influence the amount of goods that a supplier or company is willing to sell. By setting up a minimum order quantity, companies get to have better control over the cost of goods sold and flow of inventory.
Safety stock inventory
Decoupling inventory or safety stock inventory management is a techniques used to prevent sudden or unexpected stock depletion by buying more inventory than is required to meet unexpected customer demand. For its efficiency, a company first has to determine how much safety stock it needs to keep to avoid the negative impacts of holding too much inventory.
Demand forecasting is a popular inventory management system that involves using historical data to project the future demand of goods and adequately stock the warehouse.
This is an inventory planning and management technique that involves ensuring raw materials arrive just in time for production schedules. It helps reduce inventory costs as you only receive stock on an as-is-required basis, eliminating the burden of warehouse management.
Reorder point formula
One of the widely used inventory control techniques is the reorder point method where a company determines the best time to order more stock depending on the sales cycles and current inventory levels.
FIFO and LIFO
FIFO (first in, first out) and LIFO (last in, first out) are inventory management formulas used to control flow of goods from a warehouse. These formulas provide better inventory visibility while doubling up as an effective warehouse management system in busy settings.
The Value of Investing in Inventory Management Software
Successful inventory management calls for investing in a software system that will provide better insights plus critical inventory data for faster and better decision making. By eliminating manual control of your inventory, you will also eliminate the risks of human error and inefficiencies as critical processes will be automated.
Essential features to look for in an inventory management system
With so many inventory management systems available, it might be challenging settling for the best option in the market. However, this burden will be reduced when you know the most useful features to go for, and these include:
- Real-time inventory update
You need an inventory management system that offers by-the-minute insights of your physical inventory as it moves from one point to the other to ease operations.
- Barcode scanning
Barcode scanning will enable you to know where each item is placed in the warehouse while having better knowledge about your stock levels.
- Multi-warehouse inventory management
If you run multiple warehouses, you need a software that support multi location inventory management to ensure you have an accurate picture of all your inventory.
- Real-time financial tracking
You need a software that supports inventory accounting for real-time tracking and control of your finances for better inventory management.
- Cross-organisational integration
An inventory management software should support all operations by seamlessly integrating with all departments. For example a manufacturing company will require a system that provides raw material & assembly process tracking features while a retailer needs a software that can integrate with their POS system.
- Inventory demand and forecasting
For better end-to-end business management, a company has to be aware of critical inventory averages such as days inventory outstanding, lead time after placing a purchase order, and seasonal changes in product demands. Armed with these insights, it becomes easier to maintain the right stock levels and improve your cash flow by never holding too little or too much inventory.
- Advanced reporting
The best way to manage your inventory management processes is by attaining intelligent reports and analysis on the costs and value of your supply chain. This will enable you to come up with better policies and make timely decisions for proper inventory management. For retailers, aligning these reports with your sales data will be key to improving your inventory turnover ratio and guaranteeing customer satisfaction.
How RollPallet UK Can Help
If your role involves inventory management at a supply chain or logistics firm and you need assistance or advice, our team are on hand to support you. With a proven track record in helping UK businesses improve efficiency and grow the bottom line, we know a thing or two about smart space utilisation and profit maximisation!
Our team are experienced in dealing with third-party logistics providers (3PL) and a wide range of UK industries and we’re on hand to help you devise a SMART strategy for managing your inventory demands. Please feel free to contact us today if you’ve got anything you’d like our support with and we’d be more than happy to work through a plan of action with your organisation.