The Basics of Efficient Inventory Management
It’s not enough to just have an inventory management system in place. It should be an efficient inventory management system. What does it mean to have an efficient way of managing inventory? Consider the following guide.
1. Take a Holistic Approach to Inventory Management
Inventory management is not just about how many and how much came in and went out. You also have to take your storage capacity into account. At the same time, you need to have fairly accurate projections of your inventory movement.
Inventory management, after all, is not just about keeping details of your inventory. It also involves planning your inventory, particularly when it comes to how you store your inventory, how often to place orders, when to place orders, and ensuring that you move inventory in the right order, especially if you are dealing with perishable goods.
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2. Centralize Inventory Management and Use a Real-Time System as Much as Possible
Use a centralized and real-time inventory system, one that covers inventory management in all parts and operations of the company. Make this system accessible to multiple users, with appropriate permissions.
If you are going to use computers for your inventory management, invest in a truly efficient system instead of using your computers merely to copy, transfer, and verify data manually. If you are using an old inventory management software that does not afford the advantages of centralization and real-time data monitoring, it’s time upgrade or consider getting new software.
3. Automate Data Entry
Most inventory-related data nowadays can be automated, and there’s no need to go through tedious manual processes. Make better use of your employees’ time by having them do more meaningful work instead of manually inputting data that could be entered automatically. Automation significantly reduces errors and yields real time inventory data, records, and reports.
4. FIFO and LIFO Are for Costing Purposes, Not for Actual Physical Inventory Movement
You may have heard of the terms FIFO (First In, First Out) and LIFO (Last In, First Out). FIFO and LIFO are cost accounting terms. They are used to assigning costs for the products sold.
Generally, you should be selling the first arrivals or the older stocks first to avoid keeping old or near-expiring products in your inventory. This is the FIFO method. You need to carefully plan how to physically arrange your stocks to make sure that the first to come in are also the first to go out or be sold. Even if your accounting department uses the LIFO method, you should be selling the first arrivals first.
The exceptions are instances when certain products or product variants or brands have the potential to rise in prices in the near future. In those cases, you might prefer to keep them so that you can sell them when you can get higher profits.
5. Learn to Make Projections, Especially When It Comes to Costs, Sales, and Profits
Inventory management is not just about keeping records of your inventory. You also have to take into account the effect of inventory management on other aspects of your business. That’s why it is necessary to learn how to make projections or forecasts. Be mindful of seasons when sales could go up or down. Learn to be dynamic and to communicate with other departments to take advantage of opportunities when you can get low costs for new stocks and when you need to obtain more stocks than usual in preparation for increased demand.
These are just basic ideas to bear in mind as you manage inventory. There are many other advanced strategies and concepts you should consider learning, as well. As you venture with your first steps in inventory management, though, you can be sure that the points discussed here will guide you in efficiently handling your inventory.