A good inventory management is essential to maintain an optimal stock level. This helps build customer loyalty and ensures the reliability of your company’s financial strategy. It is a management process that encompasses several aspects (supply chain, inventory control, order management, etc.). Keep reading to discover good inventory management practices.
What is inventory management?
Inventory management refers to all the operations that enable the procurement, storage, tracking and use of a company’s goods and raw materials. There are two types of inventory management: inventory management and asset management.
What are the steps involved in managing an inventory?
- Purchase: purchase of finished products or raw materials from suppliers to sell to customers or to use in production.
- Production: to evaluate the quantity of raw materials used for the production of finished products.
- Standby stock: it must be defined efficiently in order to better manage the inventory and storage.
- Sales: Tracking sales is important for updating inventory and controlling stock rotation.
- Reports: They allow you to evaluate the inventory, determine the income it generates, and identify areas for improvement in future years.
What is the role of the inventory?
Inventory management is an essential task that must be performed at least once a year. The role of the inventory is to control and value the stocks. It allows you to:
- Identify and count assets;
- Classify products by item and by family;
- Estimate the value of the inventory at a given time;
- Plan the level of replenishment to be ordered;
- Determine the difference between the actual stock and the theoretical stock.
Depending on the frequency of the operation, we can have:
- A permanent inventory: records the movements of stock in and out as they occur;
- A physical inventory: evaluates the stock at a given time (at least once a year).
What are the types of inventories?
- Finished products and on sale
- Products ready to be sold to customers
- MRO (maintenance, repair and operation) products
- Raw materials
- Safety stock (to cope with a supply shortage and an unexpected increase in demand)
- In-process inventory
The importance of good inventory management
Good inventory management makes it possible to meet customer demand without exceeding it. This is a delicate balance, because on the one hand, stock-outs and delivery delays scare away customers and, on the other hand, surpluses constitute losses for the company (significant price reduction, storage costs, perishability of certain products, etc.).
The benefits of good inventory management
Improve customer satisfaction
The ability to offer customers the right item at the right time reflects effective inventory management. This is essential to improving the customer experience and exploring new markets.
To ensure the smooth running of the production line
Thanks to the organization of demand and supply, the production chain remains constantly functional without risk of shortage or saturation.
Controlling the supply chain
Anticipating the inventory levels needed for manufacturing and sales optimizes the operation of the supply chain as well as the logistics chain. In this way, you can avoid the risk of supply shortages that manifest themselves as stock-outs or much higher prices.
Ensure the development of your business
By implementing an effective inventory management system in advance, you can avoid many of the problems associated with supplier management, inventory management and production capacity as your business grows in size.
Maintain strong links with your partners
Inventory management provides a transparent picture of a company’s cash flow, which allows it to gain credibility with its partners.
Other benefits
Effective inventory management allows you to:
- Reduce costs associated with unnecessary storage;
- Determine the stock in real time;
- Improve cash flow;
- Optimize the organization and space of the warehouse.
7 tips to better manage your inventory
Classify inventory according to demand
It is recommended to start inventory management by processing the most requested products to ensure optimal efficiency of the process.
Use a single source of real-time data
Good inventory management is based on accurate and up-to-date data. Inventory management software solutions provide a real-time overview of inventory. You can store this information in an online location (Cloud) so that different departments in your company can access it. The more up-to-date the data is, the more relevant the inventory analysis will be.
Move towards mobile solutions
A barcode inventory system can simplify and speed up the inventory management process. Mobile solutions are not just for warehouse agents, they are also used to provide critical data to sales and management staff.
Technology for the benefit of retailers
Choose a suitable inventory management method
FIFO (first in, first out) and LIFO (last in, first out) are two methods used in inventory management. FIFO is applied for perishable products, while for non-perishable items, the LIFO method can be used.
Establish a relationship of trust with your suppliers
Inventory management depends on trusted suppliers. A trusted supplier can:
- Notify you if there is a shortage of goods or a supply problem;
- Offer you competitive prices and flexible purchasing terms.
Keep a safety stock
Safety stock is used in case of production or supply shortages. This is important to maintain sales and retain customers.
Invest in inventory management software
Given the complexity of inventory management and the high risk of human error, inventory management software is the ideal solution to automate your processes and optimize your results.
Automatic update
Opting for a computerized management tool allows you to automatically update inventory levels after each transaction. This way, you can manage orders and sales in real time. Your customers will be immediately informed of the availability of a product and of the replenishment delay.
9 benefits of upgrading your POS system
Fast data transfer
Inventory management software counts items quickly and accurately through barcodes or QR codes. It can also automatically transfer data to an accounting software.
Effective cash management
With real-time inventory knowledge, you can anticipate cash flow needs and improve input and output planning. You will also have a better ability to manage procurement and negotiations with your suppliers.
More informed strategies
A computerized inventory system provides the exact information that a company’s management needs, for example:
- Sales value;
- Current stock levels;
- Cost of goods sold
- Margins realized on products sold;
- Etc.
This makes it possible to identify anomalies in real time and to implement the appropriate corrective actions. Inventory management software is also used to identify slow-moving or dormant items. The decision makers of a company rely on this global visibility to develop and adapt their commercial and financial strategies according to the data provided by the management software.
Need digital solutions for your business?
With more than 25 years of experience in developing point-of-sale software, SIR Solutions offers practical, high-performance tools to merchants of all kinds (pharmacy, gasoline, food and retail, etc.). Our approach is to take advantage of new technologies to improve the management of your business and quickly increase your sales.