When it comes to inventory-based businesses, optimization is everything, particularly when it comes to quantities of stock. This optimization doesn’t just lead to more efficiencies in the warehouse and happier customers: it can also lead to reduced costs related to excess and mismanaged stock. To achieve this level of optimization, leaders and decision-makers in inventory-based operations can turn to inventory balancing, a useful practice which leads to the proper amounts of inventory being held in the correct location at the right time.
Inventory balancing is the process of ensuring appropriate stock levels are maintained within one location, as well as between various locations. It’s an integral tool in improving operations and reducing excess costs, and there are some best practices that warehouse leaders can use to balance their stock levels across all locations.
To understand why inventory balancing can Have influence in warehouse operations, it’s important to touch on why inventory optimization practices such as inventory balancing are effective. Businesses in the $15.85 billion global supply chain can either run one of two ways: they can be efficient, or they can run into roadblocks.
When inventory-based businesses are optimized, they run like well-oiled machines. In these scenarios, inventory forecasting is used to accurately predict stock needs, replenishment is done in a timely fashion, stockouts are reduced, service levels are high, and excess stock isn’t sitting on the shelves, taking up space. But when operations are not optimized, stock needs might not be properly met, replenishments can be slow, a business can incur unnecessary costs, lead times can be long, and customers might experience frustrating levels of service.
Inventory optimization isn’t just nice to have, it’s something that leads to a more profitable, resilient inventory-based operation, that’s best prepared to withstand challenges. And data shows that resiliency is on the brain for a majority of supply chain professionals, with 87% saying they plan to invest in resiliency in the coming years. This is due in part to the global supply chain disruptions that were present during the coronavirus pandemic (where the global supply chain faced a multitude of challenges).
Inventory optimization occurs when an inventory-based business is deploying certain practices to ensure it’s running efficiently. Inventory balancing is one of those practices.
There are many ways to foster resilience in inventory-based operations, and to optimize the ware these businesses run. Research shows us that many businesses are increasing inventory along the supply chain, focusing on dual sourcing of raw materials, and regionalizing their supply chain, for example. But another excellent way of optimizing the way an inventory-based business works is with inventory balancing, which can refer to moving inventory between distinct locations, as well as managing excesses and shortages within one location.
Let’s start with inventory balancing within one location. Let’s say that in your inventory management system, you notice that inventory forecasts are predicting that the future demand will be far greater than the stock that’s currently on hand. Action can then be taken to correct the amount of stock kept – inventory can either be ordered, or if another warehouse is carrying excess stock, it can be moved from that warehouse location.
To that point, inventory balancing can also occur between different warehouse locations. If one warehouse finds itself with excess stock, and another warehouse’s forecasts predict it will soon need more stock, that stock can be moved from one location to another.
Inventory balancing does just what it says: it “balances” the amount of inventory physically present within a warehouse or between warehouses, so that the right amount of inventory is kept at the right place.
How exactly can inventory balancing impact warehouse operations? Here are some of the potential benefits:
Proper inventory balancing helps reduce the carrying costs associated with excess inventory. Holding excess stock on warehouse shelves ties up capital unnecessarily and can cause a business to incur costs related to things such as storage, insurance, and handling.
Maintaining the proper levels of inventory through inventory balancing ensures that products are always readily available to meet customer needs. This means that stock outs can be prevented, along with backorders and long lead times, which can lead to improved customer satisfaction and loyalty.
An optimized inventory system through inventory balancing can lead to a smoother and more effective supply chain operation. For example, leaders can best plan their production schedules, and can streamline logistics and transportation.
Seasonal demand and other annual fluctuations are a natural occurrence in most inventory-based businesses. Demand changes throughout the year, and for some businesses, the bulk of their sales might even occur during specific times. Seasonal demand can lead to challenges keeping proper levels of stock at the correct locations, and inventory balancing can help during these times. When inventory-based businesses balance inventory effectively during seasonal swings, they can easily manage their peaks and valleys.
To properly practice inventory balancing, here are some tips to keep in mind:
Today’s inventory and supply chain software is designed to help operations run efficiently, and they provide decision-makers with real-time insights about their current stock needs, as well as answers to pressing questions and problems. For example, your inventory management solution should be able to quickly tell you what you’re going to sell, what you need to buy, what hasn’t shipped/sold, and what you’re out of. This can help with real-time decision making about how to best balance inventory, either within a warehouse or between locations.
Certain programs also have features which are designed for inventory balancing. For example, StockIQ’s transfer wizard can automatically adjust inventory loads between locations to minimize single-location overstocks. It also monitors inventory across all your warehouses and suggests transfer balances when stocking issues pop up.
Inventory balancing isn’t about the inventory that’s being held today: it can also be applied for predicted future needs. That’s where inventory forecasting comes into play. These advanced forecasts and analytics give inventory decision-makers insights into what their supply and demand will look like in the future, based on both stock levels and expected consumer demand. This can lead to efficient and timely inventory balancing, both when stock is in excess or demand, and when stock imbalances are predicted in the future.
Managing seasonal and demand patterns while avoiding overfitting in forecasting models can be challenging, but these patterns are crucial to strong inventory balancing practices. For example, if a decision-maker knows that certain stock usually moves during the winter holiday season, or that some products are unlikely to sell during the summer months, these insights can be used to understand inventory balancing needs.
Having a strong relationship and effective communication with suppliers can help improve lead times, reliability, and overall supply chain efficiency. This can become important during times when inventory balancing needs to be done (particularly when it needs to be done quickly) because it might be easier to obtain new stock in an urgent fashion.
Safety stock (or extra product which is kept as an “emergency” supply for times when demand is higher) is an important part of efficient warehouse operations, and it can play a role in inventory balancing. For example, the safety stock might need to be regularly rotated, especially if it’s perishable. Safety stock can also lead to increased warehouse costs, for stock that might or might not be needed for a business. Because of this, the levels of safety stock should be considered during inventory balancing, to ensure all overall optimized operation.
Replenishment processes (which can involve lead times, demand patterns, special pricing, supplier minimums, and container loading) also go together with inventory balancing. Decision-makers can use replenishment algorithms and models to define things such as reorder points, seasonality, lead times, safety stock, and forecast models, to ensure inventory is balanced.
Inventory balancing can be a complex operation, without the proper tools and resources, especially when it comes to maintaining proper stock levels within one warehouse, and balancing levels between various locations. But StockIQ, a supply chain planning suite targeted at 3PL’s and distributors, has many features which are specifically designed to help with inventory balancing. For example, StockIQ has replenishment features, inventory analytics, advanced forecasting tools. It also constantly monitors inventory across all locations and will suggest stock transfers when they pop up.
Find out how StockIQ can transform the way you manage your inventory-based business, and how it can make inventory balancing a breeze. Contact us today.