For any business, it is of utmost importance to be able to track supplies, orders, stock and manage consignments. Only when you have a detailed knowledge of the products that you have and what your customers seek will you be able to deliver to the best of your abilities. The systems and tools that allow you to do so are known as the inventory. No matter how big or small a business is, you will need to keep inventory. That is of the utmost importance to ensure that everyone involved in the business is on the same page. Not only does that take away confusion but it also helps to maximize the profits of your organization.
Table of Contents
What is inventory management?
Inventory management is a very important part of the supply chain process of any company. It is a collection of methods for enabling the availability of the right products at the right time for the right quantity of sale. Inventory management takes into account all the aspects of the supply chain (like procurement of supplies, storage, etc) and provides a platform for the smooth exchange of data. The better the efficiency of the inventory management system of a firm, the greater will be its cost reduction. An inventory management system helps to maximize sales by streamlining the supply chain process. This is achieved by enabling the business owner to track the inventory values and make amends to the quantity of purchase, production, and storage of products accordingly.
Having understood the importance of maintaining an inventory, we come to the importance of proper tools for it. In the olden days, inventories were managed manually. The manual calculations made it prone to error. Moreover, there was the danger of misplacing the papers or of misreading the sloppy handwriting of the person updating the inventory. To do away with all of that, these days software-based inventory systems are used. There are several such inventory systems for you to choose from depending on the nature of your business.
The criterion for best inventory management software
The expectations of different businesses from their inventory management software will vary. However, at the bottom line lies some core features, which will be needed by all businesses. The same has been discussed below.
Forecasting demand
The inventory management system should be able to take into account past data and other vital market statistics and come up with a way to forecast the demand for different goods and services. That will help the business avoid procuring too many raw materials and consequently stocking too many finished goods. At the same time, it will also avoid production shortages and will enable meeting market demands in a befitting manner.
Easily accessible
An inventory system is used by everyone involved in the business right from the suppliers to the retailers. As most of them are always on the move, the inventory management software needs to be accessible in any device Ideally, the retail Point-of-Sale should access the inventory software system. Not only will this optimize warehouse organization, but it will also save employee time and reduce the costs incurred by the company.
Fastens up the process
A good barcode inventory system will work in real-time. The quick scanning offered by these devices will speed up the intake process. The effect of this will be a more efficient management stem that will boot the business by maximizing the cash flow. Ideally, the system should be multilocational such that it allows one to track the inventory across several locations.
How to keep track of inventory
Now that you are aware of what you should expect from your inventory, the next major step would be to work on how you can keep a track of your business’s inventory. We cannot emphasize enough on the importance of this step. Here are some tips on how to keep track of inventory.
1. Categorize the inventory
The categorization of the inventory will differ depending on your business needs. Make sure that you have the four categories customized to suit your needs. The first part will be details of the raw materials that you need to produce your final product. Then, the inventory should have details of the stocks that are under production. The third tab should have details of the products that have been produced by your firm and are now ready to be sold. The last tab should contain the details of the miscellaneous things that you need to run your business. Clear documentation of these details will help you to keep a check on any unwanted wastage that comes your way.
2. Set a minimum threshold for your inventory
While working with your inventory management excel, you must decide on a minimum threshold for your supplies. Once decided, ensure that the stock never goes below this level. Factors like the rate of consumption and lead time will decide your minimum threshold. Lead time is the time taken between you placing the request for a product and you receive the same. It is only when a business ensures that its suppliers (of raw materials) never go too low, will they be able to maintain a constant supply of finished products.
3. Set a reordering level
Based on the data from your stock inventory, you should figure out a reordering point (that is higher than the minimum threshold). The idea here is that when your stock of raw materials reaches this level, a purchase requisition is initiated. This may either be automated by an inventory management program or it can be done by an employee after checking the data from the inventory system. Practical factors like the reliability of the supplier will have a role to play in setting your reordering level.
4. Determine a maximum threshold
The overstocking of raw materials is not encouraged for any business. Things like the cost of storage, the amount of space available and seasonal needs have a role to play in determining this quantity. For certain industries, change in fashion demands has a role to play in this as well. An inventory management software provides you with all the data that you need to make an efficient decision about your maximum threshold.
5. Use a continuous system for inventory maintenance
Once you have your inventory planned and the aforementioned values decided, the next major challenge is ensuring its maintenance. The most efficient way would be to have a continuous system wherein a fixed value is ordered every time the stock reaches a predetermined level. This is important when you do not want to order stocks repeatedly (and pay for the shipping every time) but you also cannot afford to run short of those. These items will be categorized in the first group in the selective value approach of categorization.
6. Prioritize inventory using a selective value approach
Here, the grouping is made into three categories. The bulk of your efforts should go into managing the first group of items. These are the expensive ones which make up only 10% to 15% of the total inventory. However, their monetary value takes up over half of the value of the inventory. Once that is t aken care of, you may move to the 20% to 30% of the inventory that makes 30% of the value. This would be the second group and demand moderate inventory control measures on your part. The last group is the one where you can resort to simple routine procedures. These make up 70% to 80% of the inventory but their cumulative value comes down to less than 20%.
7. Use the periodic system for inventory maintenance
For the items in the second and third groups of the selected value approach, you can opt for the periodic maintenance system. Here, items are ordered (in variable quantities) after a fixed interval of time has elapsed since the last purchase. As the items in these categories are not very expensive, you will not run into major business losses if you end up ordering in bulk and there is overstocking of certain quantities.
There is a common myth that inventory management software is expensive and small firms and startups will not be able to afford the same. These days there are indeed several sophisticated inventory management systems that cost thousands of rupees. But at the same time, there are many free track inventory online software for you to choose from. Thus, money should be the least of your concerns in terms of implementing an inventory management software for your firm.
Thus, we see that efficient inventory control may be the thin line separating the success of your firm and its failure. With a host of good inventory management software available at the click of a button, you do not have any excuse to avoid using them. Saving countless hours of manually tracking storeroom supplies is something that your business deserves. So what are you waiting for? Choose the best inventory management software and unleash the true potential of your firm.
