When companies take stock of their top competitive advantages, inventory management rarely comes to mind. After all, it’s a behind-the-scenes function— and a cost center, at that— but it underpins every successful operation, helping businesses deliver the right products in a timely manner while consistently meeting quality standards.
Too much stock results in unnecessary warehousing costs, while too little can lead to lost sales, so there’s a lot of money at stake. Data shows that ⅓ of businesses will miss a shipment deadline because they’ve sold an item that wasn’t actually in stock. This is typically due to low visibility in inventory management flows—sales, marketing, and fulfillment teams aren’t sharing real-time sales and inventory data.
Inventory management represents an important decision variable at all stages of product manufacturing, distribution, and sales, in addition to being a major portion of current assets. In fact, inventory often represents as much as 40% of total capital at industrial organizations.
If you neglect inventory management, you run the risk of production bottlenecks, which can result in irreparable reputation loss for companies operating in competitive industries.
Here’s how you can optimize your inventory management to kick butt.
What is stock control?
Stock control means ordering enough stock of a product that sells well. To achieve this, you must have high-quality data for tracking item cost, sales forecasts, and sales figures.
1. Data quality is everything
Good inventory management comes from accurate demand forecasting. Reliable forecasts are needed for decisions around assortments, purchasing volume, and safety stocks (extra stock which is stored in the warehouse to prevent an out-of-stock situation). Use historical data together with knowledge about inventory turnover, current order levels, and expectations for future sales.
Remember that inventory management doesn’t apply only to the raw materials you use to produce goods. It’s equally important to stock the right tools and replacement parts to perform planned maintenance tasks— especially preventive maintenance. Consequently, having robust maintenance operations data is also an important part of inventory management.
Here are the most important data points you need to know at all times:
- Which items need to be stocked
- How much of each item is needed to stock to avoid stockouts and lost sales
- Reconciliations of inventory balances
- Inventory lead time/vendor lead time
- Actual and projected inventory status
- Sales rate/demand forecast
2. Create processes and procedures to avoid confusion
While this might sound like needless paper-pushing, you’ll finally understand the importance of having procedures in place the next time a huge shipment arrives and you’re out of warehouse space because there’s a pile of deadstock nobody knew what to do with. Standardizing processes helps you run a tight ship.
Here are some things to look out for:
- Replenishment techniques. Determine minimum and safety stock levels for each product in your lineup. This can be used to trigger automated warnings when inventory falls below ideal stock quantities. Make accurate entries on every stock receipt.
- Guidelines for controlling excess inventory or dead stock. Form agreements regarding the handling of excess inventory. Some suppliers allow you to return items for a refund or credit. Alternatively, you can sell excess inventory to a liquidator or divert the inventory to a different product or plant. Similarly, deadstock can be offered as a clearance sale, donated, offered to customers as a free gift, or bundled with other products.
- Create an organized record system in a centralized database. Set up a database structure of showroom locations, distribution centers, delivery trucks, warehouses, and web inventory so you know where inventory resides in every part of your supply chain.
- Assign product classification to all items. Product classifications include product category, group, collection, vendor, and brand. Your inventory should also designate stock items, custom orders, and merchandise you plan to sell as-is.
- Maintain accurate product information. If products are sold online, make sure the product descriptions, dimensions, prices, and other product data are managed centrally so the information is consistent wherever the product is sold (online or at a brick-and-mortar location).
- Audits. Perform an annual full physical inventory to determine a true inventory valuation against your financial records and determine your annual shrink (loss of inventory attributed to damage, administrative errors, etc.). Implement a regular cadence of cycle counts and pick random areas of your warehouse to spot check weekly to keep tabs on your inventory throughout the year.
3. Be buddies with your suppliers
Having a close relationship with your suppliers enables you to accurately understand their capabilities and limitations. The goal is to source a reputable supplier who can produce a quality product and turn around large orders on short notice. Purchasing cheap parts or raw materials will only lead to defects, reworks, and scrap parts. When comparison-shopping suppliers, ask about fulfillment times, minimum order value, and comparative pricing.
4. Keep tabs (literally) on your inventory using RFID chips and IoT sensors
RFID chips enable businesses to track inventory whereabouts in real-time. RFID for inventory management requires a scanner that uses radio waves to communicate with an RFID tag. The tag contains a microchip that allowers the reader to scan data and write data to the tag for real-time tracking.
These tags help to automate and expedite inventory checking as there is no manual data entry. Also, RFID tags do not require “line of sight” scan like barcodes; it is possible to read them at a distance for fast inventory processing. However, note that unlike barcodes, which can be read by a mobile app, RFID tags can only be scanned using RFID readers.
5. Use a CMMS
Inventory management software provides quick and easy access to detailed inventory and ordering information. When you use a CMMS, you can also keep track of inventory data for your maintenance operations— including parts, tools, and other equipment needed to repair or replace major assets. Remember, preventive maintenance hinges on proper inventory management: you need to have the right parts on hand ahead of an asset’s scheduled maintenance.
Poor inventory management will only derail preventive maintenance, create a maintenance backlog as technicians wait for parts to arrive, and lead to more reactive maintenance down the road. This is why inventory management is a crucial aspect of reducing unscheduled downtime.