Inventory is a precarious aspect of every company. The need to assess demand and supply curves is critical in advising the need for inventory in manufacturing and warehousing, hence the need for inventory planning to address these and other top inventory concerns.
An appropriate and effective inventory plan starts by factoring in the different types of inventories and their characteristics.
As of 2017, up to 43% of small businesses used a pen and paper to track their inventory. It goes to show how undervalued inventory planning is despite being a crucial aspect of the success of any business.
Some of the consequences associated with inadequate inventory planning include:
To put the consequences of inadequate inventory planning into perspective, 34% of businesses ship late because they sold a product that is out of stock.
On the flip side, having an effective and well-executed inventory plan and management can improve various business aspects, including:
Inventory planning and management isn't what it once was. There are management tools and software that you can use to increase efficiency and prevent loss of time and money in correcting mistakes and disposing of overstock.
How you use your inventory management software will be influenced by the type of inventory you're managing and your business's requirements. The right inventory control technique you use is determined by the type of inventory you have and your business line.
For companies that have inventory with a set of variables like total cost of production and demand rate, EOQ is the best formula for inventory control. This technique helps to minimize related costs by identifying the greatest number of product units to order to minimize buying frequency.
The technique also considers the number and costs of units in delivery and storage. Using this technique, you can free up more operating capital.
MOQ is an ideal approach for suppliers. Using this technique, suppliers can make financial sense of their production processes. Products with a high production cost have a low MOQ, while cost-effective inventory has a high price tag.
This inventory management technique classifies inventory according to their monetary value. It's ideal for small businesses that offer multiple products. This technique requires the classification of inventory into three tiers:
Perfect for businesses that order inventory only when it's needed. With this technique, you can cut storage costs, mitigate wastage, and increase efficiency.
In JIT, you only purchase inventory when you get an order from a customer. It works for businesses handling products manufactured and supplied on short notice, have reliable suppliers, and predictable buying patterns and customers.
This inventory management technique relies on the production date of the stock. FIFO is best for businesses handling perishable goods. It dictates that the business sells the oldest stock first to prevent the accumulation of old inventory. LIFO is the opposite of FIFO and demands that the newest stock is sold first. It's most suitable for businesses handling non-perishable goods. LIFO also presents some tax advantages because it shows a lower profit on your income statement.
After all, new stock is more expensive than the old stock.
Other inventory management techniques include:
The best inventory management program depends on your kind of inventory, your business's size, and your market's tendencies. The best way to tell if an inventory program will work for you is by assessing its features and how they mesh into your business. These are some of the most vital features to look into:
The whole idea behind inventory planning is in controlling the flow of stock, forecasting surges and slowdown, and projecting future needs. A sound inventory management system should have a robust SKU item master file, forecast and projection features, easy and streamlined analysis, and purchasing functions.
Barcode scanning is the easiest way to add your inventory into your management system. Barcode scanning opens up the system to many functionalities because the barcode can contain the SKU, lot number, purchase order, or a customer shipment. Barcode and scanning features make the software efficient and accurate when stock-taking.
There are multiple data elements that inventory management systems can process. It's important to consider what the software offers that fit your business out of the box. Does it monitor key metrics like inventory turnover by SKU or GMROI?
Even more important, is the data the system is providing actionable and informative? All these are pain points that a good inventory management software can remedy.
Using this feature, the system can cater for two different businesses using a personalized approach. It's more important to understand what the system allows you to accomplish using this feature.
Can you integrate the system to other ERPs or WMS systems? Are there other add-on systems required with the system? These are the key aspects to consider when considering an inventory planning tool. Most importantly, the interface should be easy to use, relaying essential data quickly and efficiently.Final Thoughts
Inventory planning is critical to the success of the business and its association with stakeholders. Choosing the right techniques and inventory management tool with the right features can go a long way in easing the pain of handling inventory and improving your business's efficiency. You can contact us for more information on how to improve your StockIQ.