Best Practices for Inventory Management

Keep inventory levels in the sweet spot

It’s important to carry safety stock to ensure that there is always enough inventory to meet customer demand, even when unexpected events occur. This could include unexpected spikes in demand, delays in receiving new inventory, or unforeseen supply chain disruptions. Having additional stock allows you to safeguard against stock-outs and errors in inventory counting or forecasting, helping you avoid major issues and disappointed customers.

However, it’s critical that your organisation doesn’t carry too much stock. With too much stock you quickly accrue higher holding costs, insurance costs, and more. Demand for the items may fall or they may become obsolete, leaving your organisation with excess that must be disposed of. Moreover, there’s a higher risk of damage or theft when there’s too much stock in one location.

A key responsibility in inventory management, therefore, is finding the sweet spot of stock levels and implementing strategies to keep it at desired quantities. To do this, an ABC analysis can be useful…

Use an ABC analysis to prioritise products

An ABC analysis is an inventory management technique where you categorise items into three camps based on their value and sales frequency. This allows you to organise the warehouse to optimise how and where stock is stored. The categories are as follows:

A items

High priority items that are sold in the largest quantities and need to be regularly reordered are considered A items in your inventory. These products often require constant reviews to ensure quality.

B items

Medium priority products which need to be replenished once a month or so are considered B items in your inventory. These are still valuable but not as high priority as the A group.

C items

Low value products that sell often and are replenished infrequently are considered C items.

Choose the right inventory management system 

There are two main methods of determining how and when to restock in inventory management: periodic review and continuous review. The type of business, products, and inventory flow will help determine which option is better for your organisation.

Periodic review

The periodic review inventory management system is where you order new products at regular intervals. By evaluating the inventory levels of each item at the end of the period you can determine how many new items to order. This means that the number of products ordered may change each time.

Continuous review 

Instead of placing orders for new products after a predetermined interval, the continuous review system involves replenishing stock after the quantity of an item reaches a set level. With this system of inventory management, tracking quantity levels is essential. Usually, the same number of new products are ordered each time.

In summary, periodic review consists of ordering a different number of items after a set period of time, while continuous review means ordering the same number of items after stock levels dip to a certain point.

Organise your warehouse for FIFO

Strategically organising your warehouse is another best practice for inventory management. In addition to keeping the inventory neat and organised across your single stock room or multiple warehouses, creating a system for how inventory is stored can help streamline all processes.

The first in first out principle in inventory management is key for businesses selling products that are perishable or need to be rotated. By selling the oldest inventory first, you can minimise losses on spoiled stock, reducing wastage and saving money.

For the FIFO approach to work, it’s important to plan for stock rotation in the warehouse. The oldest stock (first in) should be located at the front of the warehouse so it can be sold fastest (first out), while newer stock is moved to the back of the warehouse.

Barcode tagging can help keep tabs on the flow of inventory around the warehouse with location tracking. Check out our guide to barcode asset tracking to find out more about how barcodes can help you with tracking inventory and assets in your warehouses.

Optimise your quality control process

Quality control is more than just occasionally checking products for problems such as signs of damage or missed expiration dates — it also means considering the warehouse environment and any ways that storage might impact the quality of products. For example, the temperature and humidity levels in the warehouse might impact products in storage, or light may damage them.

By implementing effective quality control procedures, businesses can reduce the likelihood of customers receiving defective or damaged inventory, which can lead to costly returns and delays in order fulfilment. Additionally, by ensuring that inventory meets quality standards, you can minimise the risk of stock-outs and increase the likelihood of repeat business from satisfied customers.

To improve quality control, first identify the key points in your inventory management process where quality control is most important. This could include points such as receiving, storage, picking, packing, and shipping. Then, develop procedures and checklists for each critical control point to ensure that quality standards are consistently met.

Establish and measure inventory KPIs

Inventory KPIs can help you measure the efficiency of your inventory management efforts. Some essential key performance indicators include cycle time, inventory write-off, carrying costs, fill rate, and order status and tracking. Tracking these KPIs is useful as this can help businesses to identify areas for improvement in their inventory management processes. By measuring KPIs over time, businesses can identify trends and patterns that may indicate inefficiencies or bottlenecks in their inventory management processes.

Furthermore, tracking KPIs such as carrying cost of inventory and days of inventory on hand, helps decision-makers better understand the costs associated with holding inventory and make informed decisions about optimal inventory levels.