No matter what kind of raw materials or products they happen to stock, organizations must approach inventory with care if they want to remain competitive in today’s challenging marketplace. With this fact in mind, here are five elemental principles of effective stock inventory management:
1. Demand Forecasting
Because inventory ranks among the top five biggest expenses for business in most industries and sectors, it is important to cut costs avoid in this area by avoiding wasted stock while ensuring that you have plenty of product on hand. This is where demand forecasting comes in.
A multifaceted practice that takes many operational factors into consideration, demand forecasting involves maintaining appropriate stock levels for each product in your inventory.
Using sales figures, shipping lead times, and other critical information criteria, data forecasting allows inventory managers to set minimum and maximum stock numbers that are both safe and cost effective. When performed well, demand forecasting offers higher savings potential than any other basic principle of inventory management.
2. Warehouse Flow
Although they are often depicted as dirty and cluttered in movies and TV shows, warehouses have actually grown into extremely clean and highly organized environments that employ state-of-the-art robotics and refined management systems to control inventory flow.
In fact, many lean manufacturing concepts for factories have proven equally useful in the warehouse. The lean 5S approach, for example has let to marked warehouse improvements in the areas of sorting, setting order, systemic cleaning, standardizing, and sustaining operations to avoid the loss of money through inefficiency.
3. Stock Rotation
After analyzing your demand forecast and your warehouse flow, you can begin to define an optimum level of stock rotation. Particularly useful in the management of highly perishable inventory items, stock rotation (also known as inventory turn) is essential in industries such as food and pharmaceutical production.
Briefly defined, stock rotation involves adding newer stock to back storage while moving older stock to front storage for easier access. Establishing a successful stock rotation or inventory turn rate is a key part of avoiding waste due to product expiration or spoilage.
4. Cycle Counting
A highly efficient and effective way to maintain accurate inventory counts, cycle counting involves the daily tabulation of small amounts of warehouse inventory, often with the final cumulative objective of tabulating warehouse inventory in its entirety. This can prove especially useful for companies in industries that mandate 100-percent inventory count validations on a periodic basis.
In addition to ultimately boosting the efficiency of full inventory counts, cycle counting helps measure the ongoing success of existing warehouse processes and account for potential sources of error. Cycle counting can occur on an ongoing basis or begin and end on specified dates. Errors found during each cycle count allow warehouse managers to adjust inventory accounting records for accuracy.
5. Process Auditing
In addition to cycle counting, process auditing is a great method of proactive error source identification. For this reason alone, wise inventory managers will conduct objective audits early and often to monitor significant process changes and make process adjustments as needed. While cycle counting focuses on precise inventory numbers, auditing seeks a similar level of precision for inventory processes.
Process auditing is a blanket term that encompasses a broad spectrum of analytical procedures to evaluate an organization’s inventory methods while confirming that its financial records match an accurate count of its physical goods. Organizations should complete process audits at each transactional link in the inventory management chain from receiving to shipping. By paying careful attention to ease of operations at all processing points, inventory managers can dramatically boost efficiency and slash costs.