Inventory management is an essential step in a business organization. Still, it seems that many companies are not paying too much attention to building and managing an effective inventory management process.
You may find yourself somewhere in this article because every 1 out of 2 firms does not know how to implement the inventory management process properly. Why so?
There are countless reasons why people overlook this important stage.
First, people consider it not in the list of profitable jobs like sales or customer benefit performance like marketing. They just need to achieve immediate achievements, such as reaching high sales or attracting a lot of new customers.
Second, many businesses assume that their products are of good quality, so of course, their customers will wait in case their goods are out of stock. No. If you do so, you will lose leads and gainable revenue to the hands of your competitors.
Or, companies just have to stock up on goods to deliver to customers whenever they need them. This is even riskier when they both incur costs related to inventory and the risk of goods damaged or expired when there is no output.
Finally, many enterprises are not able to plan a complete inventory management process because it requires a lot of work to be done.
Some of the above thoughts are somewhat correct, but…
The inventory management process is built for a reason, and it offers more practical benefits than you might think. We will list them in the article.
Anything else? Of course, the steps are taken to build an effective inventory management process. Besides, we will also provide some useful tips and tricks on how to improve inventory management process. Therefore, do not ignore any useful information.
Let’s dig into it!
Table of Contents
- What is inventory management process?
- Benefits of a winning inventory management process flow
- Inventory management process steps
- How to improve inventory management process
What is inventory management process?
The inventory management process consists of the steps that business managers take to organize, transport, track, record, and store goods so that they have enough stock to meet the demand of their customers in the most optimal way. It is not just about customer experience, but it will affect your overall supply chain management, cash flow, and supplier relationships. Specifically, about the benefits of an effective investment management process, we will discuss in the next section.
Back to “What is inventory management process?”. It will go from A to Z about the distance of the goods beginning to reach you, being stocked up, put into the warehouse, and then shipped to the customers. It repeats continuously throughout the business’s life and should be continually improved to accommodate the gradually expanding needs of your company.
Inventory has 3 different main types, including finished goods (for distributors), raw materials and components (for manufacturers), and indirect materials (for businesses of all kinds), which do not support the production but daily operations of a business.
Depending on the type of business, the methods of inventory tracking will be varied. Currently, the most widely-used inventory management techniques are Cycle Counting, ABC Analysis, Just-in-Time (JIT), First-in, First-out (FIFO), and Last-in, First-out (LIFO), etc. The inventory frequency will also diversify, which can be weekly, monthly, quarterly, or yearly.
With this method, you will plan to count specific portions of inventory in an iterative cycle, usually once a year. It ensures that the goods are fully inventoried, without any loss or deviation from paper data.
You will classify goods according to 3 levels, including A – items with the highest value but taking up less storage space and costs, C – items with the least value but taking up a lot of storage space and cost, and B – items which are between the other two. From there, you will know which goods you should store and discard to save costs and gain the most profit.
You will need to calculate the amount of inventory remaining which are needed to serve your customers while you wait for the goods ordered. This way, you will avoid redundancy while ensuring the best customer experience.
First-in, First-out (FIFO)
This technique refers to items first placed in stock that will be shipped for sale first. It is suitable for firms that trade in perishable items or products having a short lifespan.
Last-in, First-out (LIFO)
In contrast to FIFO, LIFO is suitable for difficult-to-be-damaged items, such as bricks, stones, cement, etc., as the items arranged last will be sold first to the customer.
Benefits of a winning inventory management process flow
Enhance process and staff efficiency
If a business has a placeholder owned by them, it’s no problem. However, most SMEs, who do not have a lot of capital, have to rent warehouses to meet temporary needs. If inventory management is ineffective, its costs will increase many times over time.
In particular, as these companies expand in size or receive more and more contracts, the need for a larger warehouse will leave less profit.
Nowadays, with the advancement of technology, you can get support from software, tools, or eCommerce platforms with built-in inventory management utilities. Building an effective inventory management process with automated features like this will help you eliminate human intervention and increase data accuracy. Not only that, but the process will also be updated and implemented faster. Channel coordination will be smoother and more consistent than traditional inventory management work.
Limit inventory waste and costs
Stocking up too much inventory will cause unnecessary waste. Meanwhile, you can leave that space for the top value items to maximize sales. Using techniques for the inventory management process will help you to properly calculate the more important items as well as the proper quantity of goods without wasting space and money.
Improve effective long-term inventory planning
To be able to plan an effective inventory management process, you should use more than 1 technique above to get a comprehensive view of this work. From there, you will know where the problem lies in the inventory management process steps as well as what should be maintained.
Furthermore, preparation for the future is also necessary. Gradually, refining the inventory management process flow will be very beneficial for long-term planning as your business gets bigger.
Inventory management process steps
#1: Know your budget
First, you need to consider the budget closely and meticulously needed for your inventory management process manually, i.e., manual budgeting and activity-based costing, or specialized budgeting software. The second way will save you time and be more efficient.
#2: Plan your warehouse
The second step is how you envision where your warehouse will be located, how the goods will be stored, and the frequency and duration of shipping depending on the type of product. In terms of location, warehouses may belong to one or more of the existing business facilities or rental warehouses. It is important that their location meets the convenient requirements of the supply chain so that operating and transporting goods do not take too much time and cost.
#3: Make a preliminary order list
This step is designed to give you an overview of the number of products in stock. At this point, cycle counting will be easier and faster, and you will be able to avoid running out of stock early or redundant goods when running the inventory management process.
#4: Choose inventory management software
Through internal needs assessment, you will choose the right software based on your budget and needs. Customizable features will follow those requirements along with important integrations to save you time importing data. However, keep in mind that using the software is still quite expensive for smaller or mid-sized companies. Therefore, please consider carefully before making a decision.
How to improve inventory management process
- Prioritizing your inventory with ABC analysis and dividing the warehouse space into such groups are really essential when you have many types of goods for sale.
- Please ensure that your product information, including suppliers, barcode data, countries of origin, lot numbers, and more, is always tracked fully and accurately.
- It’s a good idea to have more than one vendor in case problems arise. Reliance on a single supplier can make your business activities get a bottleneck at some points of time.
- At first, you may not have a lot of capital, but try to save a proper amount of money for the inventory management process to improve it later with the right software and website platforms.
Our last words
Not only does it help businesses strictly manage goods, save costs, and increase revenue, but the inventory management process is also beneficial for their expansion. In fact, you only need to keep in mind the above knowledge that you can easily master the inventory management process. Feel free to reach out to us for further information. And don’t hesitate to like and share the guide with others if you find it useful. Thank you.