With goods continually moving across the supply chain, it can be difficult to keep track of everything – especially if you decide to sell through numerous channels or have inventory in multiple locations.
To properly manage inventory, you must have a robust inventory plan in place to guide your efforts.
An inventory plan may help you track stock consistently across your supply chain, ensuring that you always have enough products to fulfill demand.
Let’s take a deeper look at what an inventory strategy is, why it’s essential, and what to think about while creating your own.
Inventory Strategy Definition
An inventory strategy is the implementation of procedures and systems to manage product flow across the supply chain, from production and procurement through warehousing and shipment.
Inventory strategy oversight ensures that you have adequate stock to fulfill demand while also optimizing production, items in transit, storage, and expenses. It also assists your firm in being organized with inventory accounting so that you are ready for tax season.
Helpful Inventory Management Strategies
Inventory management may appear straightforward at first, but it becomes more difficult as your SKU line, order volume, and client base expand. Using the correct inventory management tactics may help you save money, increase visibility, and prepare for the unexpected.
Here are several tried-and-true inventory management tactics you can implement right away, thanks to advances in technology.
- Automation of Inventory Management
Manual inventory management is not only time-consuming but also error-prone. Inaccurate inventory records may throw your entire business off, resulting in big inventory problems and disgruntled consumers.
Fortunately, there are several inventory management automation systems accessible. Many of them are inexpensive and simple to integrate into your existing e-commerce technology stack.
Inventory automation technologies are meant to track and manage inventory across sales channels and distribution facilities in real time, allowing a company to maintain a high inventory turnover rate and low days sales in inventory.
- Actual Inventory Insights
Because inventory is continuously changing, having real-time inventory information is critical. You may make rapid decisions based on timely data with real-time inventory analytics.
Customers will not be able to place orders for out-of-stock products because your inventory data were not up to date. It not only prevents stockouts, but it also lowers the possibility of backorders, which can have a negative influence on consumer satisfaction due to extended wait periods.
Furthermore, having reliable, real-time inventory analytics allows your company to develop a more agile supply chain. If something goes wrong, you may still fulfill orders on schedule.
- Setting Precise Reorder Points
Many systems, in addition to real-time inventory management and automation, allow you to create automated reorder points.
By analyzing previous inventory data to estimate demand, you can determine how many units to purchase and when. You may then set up an automated reorder point notice to remain on top of inventory replenishment.
Other considerations to consider when determining a reorder point include production and warehouse receiving lag times (thinking through everything from transportation to 3PL turnarounds).
To guarantee that goods are available on time to fulfill requests, examine first-mile delivery and inventory receipt timings.
- Creating A Safety Supply Inventory
You never know when demand may skyrocket. Perhaps an influencer mentioned your product, and you suddenly have thousands of people ordering it.
Comparably, inventory shortages may occur if there are unanticipated disruptions in the supply chain, such as flooding is a type of dangerous meteorological phenomenon, holiday closures, such as Chinese New Year or COVID epidemics cause general delays or facility closures at manufacturing plants or fulfillment centers.
This is why it’s critical to maintain a little bit of safety stock on hand (even in multiple locations) in order to prepare for the unexpected. You can use the following calculation to determine how much safety stock you require:
Safety Stock = (Maximum daily usage x Maximum lead time) – (Average daily usage x Average lead time)
- Demand Forecasting Accuracy
Having an inventory plan allows for speedier decision-making, which leads to faster market adaptation. The more precise your demand forecasting, the better you will be able to manage your inventory regardless of what happens.
Estimating demand is never 100 percent correct, but by projecting how much demand you could have in the near future, you can plan ahead and either raise or decrease your inventory investment accordingly.
You can simply maintain appropriate inventory levels to meet demand by combining inventory tactics such as demand forecasting and safety stock.
Creating Own Inventory Strategy
When creating your inventory plan, there are various factors to consider. Keeping your company’s needs in mind, here are some strategies for developing an inventory plan that leads to higher profit margins, cheaper expenses, and happier consumers.
- Scanning of Inventory
If you own a warehouse, barcode scanning should be an essential element of your inventory management process since it helps to keep things organized and inventory records correct. And, if you engage with a third-party logistics provider, delivering barcoded items will only assist them to manage your inventory.
Inventory scanners can read information embedded in product barcodes and transfer it to a warehouse management system automatically. It is now simple for SKUs to be tracked and managed in real-time, to keep an eye on the availability of stock, and to see where goods are stored.
Inventory scanners can also aid in improving inventory visibility, particularly when working with hundreds of SKUs. Furthermore, adopting inventory scanners may dramatically increase order accuracy while also speeding up the fulfillment process.
- Reporting of Inventory
Not only can you simply manage inventory with the correct systems and processes in place, but it’s also a lot easier to extract accurate inventory records when you have all the data at your fingertips.
Inventory reporting is critical since the performance of your inventory reveals a lot about the overall operation of your supply chain. Furthermore, because inventory is an asset, you will want correct inventory records for your accountant at the end of the year.
Inventory reporting may appear to be extra labor or paperwork, but it may save you a lot of money and time in the long run.
- Inventory Management
Inventory management is a vital component of your inventory strategy, spanning everything from SKU management to warehouse management.
To stay organized, increase order accuracy, and avoid stockouts, you’ll need a system for tracking and categorizing your inventory at the SKU level, especially if you’re handling several SKUs.
- Accounting of Inventory
Inventory is a corporate asset, thus keeping correct inventory records is critical for inventory accounting.
You will need to know how much your inventory is worth at the conclusion of a fiscal year or accounting period by selecting an inventory valuation technique and sticking with it throughout the year.
Inventory records that are accurate take the guesswork out of determining inventory value. Data may be gathered and downloaded automatically rather than manually. Many systems also make it simple to generate personalized reports.
- Forecasting of Inventory
Access to data and insights for inventory forecasting is something that should be included in every inventory strategy and plan.
Inventory forecasting is the practice of calculating how much inventory you will need to fulfill future orders based on how many units of each product you anticipate selling during a certain time period.
You must consider planned promotions, the Christmas shopping season, and other external events while predicting (e.g., when shoppers may be distracted during an election cycle or when shopper will be bored during a COVID lockdown).
You must also consider lead times (the time it takes inventory to travel from the manufacturer to the point where it can be fulfilled) to ensure that inventory arrives on time to fulfill orders.
By linking the upstream operations of purchasing and production to the downstream activities of sales and product demand, the proper inventory management system may help you gather inventory analytics throughout your supply chain.