Delivering results across your supply chain
In today's fast-paced commercial world, staying ahead of the competition has come to mean more than having the right products in stock. Inventory control is the process of managing and overseeing a company's assets and resources. An important part of supply chain management, it helps ensure that the right products are available in the right quantities while minimizing excess or obsolete stock.
By defining strong inventory control practices, you will see reduced carrying costs and increased turnover, which can mean the differences between a surviving and thriving business. In other words, inventory control involves making decisions about meeting customer demands at the least cost possible—from procurement to storage to tracking, through completion of the cycle with the sale or use of products.
Inventory control is a vital part of businesses across different industries, ranging from manufacturing to distribution to retail. It helps build a seamless supply chain in several key ways:
Cost management plays an important role in the overall financial health and success of the business. It encompasses diverse financial aspects, including minimizing costs associated with purchasing, storing, and managing inventory items.
Effective cost management in inventory control includes:
Inventory control helps maintain the right quantity of inventory, meaning that products will always be available when customers want them, boosting customer satisfaction and loyalty.
Well-organized inventory control reduces the need for excess storage space in the warehouse.
When following best practices, items are organized to create more available space, potentially reducing warehouse costs and increasing labor efficiencies. This will make it easier for warehouse staff to locate, pick, and pack products for orders.
Inventory control helps ensure that financial statements accurately reflect the value of available inventory. Financial reporting also lowers the chances of theft, reduces tax liabilities and deductions, and gives clear information on the amount of profit made through inventory control methods such as FIFO (First-In-First-Out) or LIFO (Last-In-First-Out).
With proper inventory control, businesses can reduce their waste through expiration or damage (to almost zero). This is especially important in companies and industries that handle products with limited shelf life, such as pharmaceuticals and food stores.
Inventory control is critical for businesses since it enables scalability and adaptability to market conditions. Other benefits include:
Accurate inventory control provides businesses with information on pricing, promotions, and purchasing, thereby aligning business strategies with market realities. For instance, inventory control systems continuously gather data on product sales, replenishment rates, and seasonal fluctuations. By leveraging this data and analytics, you can help ensure proper resource allocation to meet customer demands and financial goals.
For instance, inventory control systems continuously gather data on product sales, replenishment rates, and seasonal fluctuations. With this data, you can make informed predictions about future demand.
A series of synchronized stages form an effective control of resources and assets in a company. They include:
The most commonly used method of classification is the ABC analysis, where items are classified as "A" (high-value, low-quantity), "B" (moderate-value, moderate-quantity), or "C" (low-value, high-quantity).
Forecasting the item demand of an asset plays a pivotal role in inventory control, since all businesses (big or small) need to predict how much of an item is needed to avoid overstocking or stockouts. Demand forecasts are usually done by analyzing historical sales data, market trends, and seasonality.
Inventory control best practices are incomplete without mentioning safety stock, a buffer maintained to account for unexpected fluctuations in supply or demand.
inventory control practices often rely on advanced technologies such as inventory management software, barcoding systems, or RFID tags to enable real-time inventory tracking.
Regular audits and monitoring of inventory levels and turnover rates are important to help ensure that the system remains accurate and aligned with business goals.
This refers to a set of proven strategies that businesses can implement to manage inventory while achieving targeted goals, including lowering costs or maximizing profit.
The first best practice for inventory control is the adoption of a management methodology. This is important because it serves as the foundation for the entire inventory control system by providing a structured approach to handling inventory.
Considerations for choosing a management method include:
Optimization is an essential key to growth in any business. Streamlining purchasing procedures helps you drive efficiency while reducing operating expenses—so you can grow your business.
In addition, optimized purchasing procedures lead to cost savings. When a business can accurately forecast its inventory needs, it reduces instances of overordering or underordering.
Steps to optimizing purchasing procedures include:
Building and maintaining strong relationships with suppliers can have a positive impact on your ability to maintain optimal stock levels, reduce costs, and help ensure a smooth supply chain.
Building a stronger relationship with your supplier offers many benefits:
Leveraging automated reports gives you real-time insights into inventory levels, sales trends, and reorder points.
This reduces human error, ensures data accuracy, and helps the business make informed decisions.
Risk assessment involves evaluating potential threats that may negatively impact your supply chain of the inventory.
By conducting regular assessments, you can stay ahead of market fluctuations or regulatory changes and adjust your inventory levels or product offerings to meet demand.
ABC analysis, which is also known as Pareto analysis, is a method of categorizing inventory items based on their value and significance to your business. The primary goal is to prioritize resources and attention where they will have the most impact.
Here's how ABC analysis works:
In inventory management, determining the reorder point is important for maintaining a smooth and efficient supply chain. This point represents the inventory level at which a new order should be placed to replenish stock before it runs out completely.
A well-established formula for calculating reorder points, such as the Economic Order Quantity (EOQ) model, can help you make better inventory decisions.
Regular audits are essential for maintaining data accuracy, prevent shrinkage, protect assets, and identify process improvements. By comparing physical inventory counts with recorded levels, any discrepancies can be promptly identified and investigated. This not only helps in preventing costly errors but also ensures that the business can make informed decisions based on accurate data.
Inventory control policies and processes are fundamental components of effective inventory management within a business. After all, they define how your company acquires, tracks, manages, and disposes of its inventory.
They help businesses strike a balance between meeting customer demand and minimizing holding costs, ultimately contributing to profitability and customer satisfaction.
By implementing these inventory control best practices, you’ll have one less logistical complexity to worry about in modern business.
Do you have more questions or need help with your business inventory control? Reach out to us at Epicor and leverage our wealth of knowledge and experience.
