Inventory optimization is the provision of the right inventory, in the right quantities and at the right locations, to meet the supply and demand of parts and materials in the enterprise. Significant benefits exist for organizations that optimize their inventory by reducing inventory items and stock levels, thus avoiding associated carrying costs and obsolescence write-downs. Indirectly, organizations can generate savings by using time formerly spent on inventory management to ensure physical assets’ reliability and availability.
Inventory is one of those things that retailers often miss the mark on. Granted, most small businesses use point of sale systems to track their inventory to some extent, but very few retailers are taking full advantage of the capabilities of their system with respect to inventory management and control.
Here are 8 inventory methods and practices that will help you optimize your warehouse processes.
1) Categorize Your Inventory Using ABC Analysis
ABC analysis is a technique for arranging your inventory into a hierarchy of most important to least important items.
Here’s what an ABC analysis would look like in practice:
- A-items are the best-selling, highest priority stock and require regular reordering and constant quality review
- B-items are valuable, medium-priority stock and usually require monthly reordering
- C-items are low-priority stock and are typically carried in high volumes with minimal reordering
Organizing your stock within your warehouse according to how they sell and how much value they bring your business will help you optimize storage space and streamline order fulfillment.
2) Optimize Your Pick and Pack Process
The pick and pack process is a set of procedures and tools that your employees use to fulfill customer orders quickly and efficiently.
Types of pick and pack processes:
- Discrete order picking
- Batch picking
- Wave picking
- Zone picking
Here are 5 ways to optimize the pick and pack process for effective inventory management:
- Design your warehouse for efficiency by placing your top-selling items nearest the packing station
- Keep your warehouse well-organized by cleaning every area and removing clutter
- Implement and program a warehouse management system (WMS) so that the items picked are listed in the order the picker will find them.
- Double check each order for accurate counting
- Use barcodes or RFID son every piece of inventory for easy counting
3) Establish Your Inventory KPIs
Inventory KPIs measure your performance in a particular area over a specific amount of time toward a certain goal. They help to eliminate guesswork by giving you clear milestones to hit every week, quarter, or year.
With them, you’ll have the data you need to make smart, strategic decisions for your business.
Here are 6 inventory KPIs you should focus on:
- Inventory carrying costs
- Inventory write-off and inventory write-down
- Rate of inventory turnover
- Cycle Time
- Order Status and Tracking
- Fill Rate
4) Use Batch Tracking
Batch tracking is sometimes referred to as lot tracking, and it’s a process for efficiently tracing goods along the distribution chain using batch numbers.
A “batch” refers to a particular set of goods that were produced together and which used the same materials.
Use an automatic batch tracking system in order to enter information about all the products within your batch – keeping that information at your fingertips if you need to access it quickly, as in the case of a product recall.
5) Use an Accurate Reorder Point Formula
A reorder point formula tells you approximately when you should order more stock – when you’ve reached the lowest amount of inventory you can sustain before you need more.
You can stop being a victim to market spikes and slumps by using a proven, mathematical equation to help you consistently order the right amount of stock each month.
6) Carry Safety Stock Inventory
Safety stock inventory is a small, surplus amount of inventory you keep on hand to guard against variability in market demand and lead times.
Without safety stock inventory you could experience:
- Loss of revenue
- Lost customers
- And a loss in market share
What makes safety stock a critical inventory management best practice is that you’ll reap all these benefits by using it:
- Protection against unexpected spikes in demand
- Prevention of stockouts
- Compensation for inaccurate market forecasts
- A buffer for longer-than-expected lead times
7) Streamline Your Stocktake
Streamlining your stocktaking process – the steps you take to count inventory – will help you mitigate the possibility of your staff making costly mistakes.
A well-structured stocktaking process will include all the steps required to keep your staff working efficiently to uncover discrepancies and inaccuracies while keeping them engaged and focused.
Here are a couple of ways to streamline your stock take:
- Schedule your stock takes to reduce impact on business operations
- Clean and organize your stockroom before performing your stock take
- Know what stock you’re counting and how you’re counting it
- Open and count absolutely everything – no guesswork allowed
8) Use a Cloud-Based Inventory Management System
Unlike locally-installed applications, Cloud-based inventory management software allows you to pay for the features you need now and seamlessly upgrade when you need to in the future. You’ll pay a single, predictable subscription fee for a “package” that best suits your particular feature needs and team size; then, upgrading is just a few clicks away when your business growth justifies a more powerful platform.
Find out more benefits of cloud-based inventory management software.