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Posted on : Thursday 2nd July 2020 03:10 PM

Essential Inventory Management Techniques for Manufacturers

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Inventory management is probably the most crucial aspects of any organization. Warehouse managers come across many challenges which can benefit from it, including reducing inventory-carrying costs and making certain that enough inventory is on hand to finish jobs on time. Effective inventory management processes are the answer to streamlined business operations.


Holding excess inventory ties up your cash on hand. It is quite difficult to maintain a healthy balance between supply and demand. Inventory management, when done well, saves time and money in this area. It also eradicates the risk of overproduction and stock-outs.


Automated operations, similar to inventory management, reduce data redundancy and increase speed, efficiency and accessibility. The appropriate inventory management software streamlines warehouse activity. This would include inbound and outbound transfers, label printing and bin tracking. Below are some other benefits:

•             Obsolescence: Inventory management software monitors stock. It replaces outdated products with the newer versions.

•             Stock-outs: Keep your customers and your competitive edge by fulfilling orders on time. Inventory management software helps you avoid stock outages that can delay production.

•             Cost: The carrying costs of excess inventory reduce cash flow. It also limits the capital you have available to invest in your business. If you want to increase your bottom line, cut the cost of inventory and other expenses.


Basic Inventory Management Techniques to Speed up Delivery


A. Relationship Management

Strong working relationships with vendors, suppliers and warehouse personnel are required. Inventory management software allows collaboration across the supply chain. Restock the warehouse, troubleshoot manufacturing issues, expand storage space or dispatch orders. Do all this and enjoy timely delivery of your goods as well as customer satisfaction.


B. Contingency Planning

Running a business comes with certain risks. However, you can mitigate them with strong inventory management software. Team members who are responsible for contingency planning can run real-time inventory updates. They can check product availability aligned with delivery deadlines, and see tasks associated with the inventory requirements.


C. Inventory Control

Inventory control manages the least level of stock needed to prevent inventory shortages. This ensures that you satisfy customer demand without disruption or delay. Inventory control also reduces excessive stock on hand that ties up capital. Companies use a variety of inventory control methods:


Just in Time (JIT) is an inventory strategy that hold ups the purchase of stock right until a customer places an order. The manufacturer receives the goods just in time for use. This approach to inventory control, sometimes known as lean manufacturing, reduces inventory-carrying costs.


ABC analysis is an inventory control method that categorizes items into three parts (A, B, and C).

•             A-items – goods that have the highest annual consumption value.

•             B-items – includes interclass items; it accounts for 30% of the total inventoried goods.

•             C-items – items with the lowest consumption rates; it accounts for approx. 50% of the entire stock.


Small or low-value items apply the two-bin method of inventory control. The products are partioned into two bins and sorted. The first bin is loaded with the working stock that needs to be delivered to the prospective customers. The second bin stocks the reserve items or the remaining materials. It is better to rotate the stock from the first bin to the second to avoid spoilage and obsolescence.


FIFO states that the oldest stock (first in) is sold first (first out). This relieve time and money, cutting out the possibility of unsellable or spoiled goods.


The inventory control method known as set-the-levels sets the minimum and maximum levels of inventory required.


D. Regular Audits

There are three ways to track inventory: physical inventory, spot-checking, and cycle counting.

•             Physical inventory - every item in the warehouse is counted once a year.

•             Spot-checking - counts the stock to verify it with the quantity that should be there according to the plan.

•             Cycle counting - different products or small subsets of inventory are counted in a specific location, on a specified day.


E. Accurate Forecasting

Accurate forecasting commences with an understanding of past demand. The review of historical data gives you clues about future demand. Forecasting indicators include the economy, political trends, past growth rate, orders and promotional activity.


F. Drop-shipping

Drop shipping is an inventory management method that does not hold inventory in the warehouse. It encourages cost reducing by direct shipment to consumers after a product or a part is purchased from third-party vendors.


Bottom Line

Use any one of these techniques to power-up your inventory management practices. A growing business needs to have strong inventory management that will scale as your business grows and changes. Picking out the inventory management software that best fits your business model is very hard, but worth it in the end.


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