Running a supply chain successfully calls for the best inventory management techniques. Unless you maintain a thorough inventory of your products, there’s no way you can keep track of the supplies. This, in turn, would prevent you from having the right product in the right place at the right time. Globally, $1.1 businesses lose $1.1 trillion of revenue to inventory distribution every year.
Especially at a time global economic upheavals are causing businesses to adjust their scale of supplies, inventory management is indispensable. However, managing the inventory of products supplied from manufacturers to warehouses and from warehouses to the points of sale is no easy task. Regardless of the scale of operations, business owners need to be smart about inventory management.
What Exactly is Inventory Management?
Inventory management is a crucial element of a supply chain – the process of tracking all the stock from the point of purchase to the point of sale. Businesses need inventory management to determine when to order new stocks, what to order, and where to store them. A variety of inventory management techniques come into play even for small and large businesses.
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7 Inventory Management Techniques that Small and Medium Business Owners Should Know
While large businesses have larger inventories to manage, SMEs (Small and Medium-sized Enterprises) face a tough challenge too. With limited resources, small and medium businesses can’t afford to compromise on efficiency and accuracy. Here are 7 inventory management techniques that your business should incorporate.
Though it would take some more effort and coordination, dropshipping can help you bypass storage challenges. This is a shipping procedure where the product is shipped to the customer directly by the supplier. Dropshipping eliminates the necessity for a storage facility in between, and you don’t have to handle the shopping either.
The dropshipping market in the US is growing at a rapid rate, expected to hit $26 billion by 2027. However, we’d advise you to keep this technique reserved strictly for orders that can’t be accommodated in your warehouse and storage facility. When you choose to let the supplier handle the shipping, you can’t do much to ensure a good customer experience. You can only trust the supplier and hope they’ll handle the task smoothly.
2. Safety stock inventory
It’s a good idea to store some extra units of your best-selling products and products that are likely to stay in demand for a long time. The extra units will come in handy during an unexpected surge in orders or a supply chain bottleneck. However, you also have to be careful not to over-order – especially for perishable goods.
You need accurate and regularly updated sales projections to properly maintain a safe stock inventory. If you notice a rise in demand, be prepared to order more units for the safety stock. If a product starts selling less, it’s time to reduce or get rid of its safety stock altogether. To successfully implement such inventory management techniques, you need regular updates on your sales data.
3. Accounting methods: FIFO and LIFO
There are two inventory management techniques in regard to accounting – LIFO and FIFO. The former stands for First In, First Out, and is suitable for businesses that sell the oldest inventory first. This is how most businesses work as it helps keep the inventory fresh by constantly clearing away old stock.
The other method, LIFO, stands for First in, Last Out. This accounting method works for businesses that ship out the most recently received inventory first. While this can cause old stocks to build up and is unsuitable for perishable goods, the LIFO may offer certain tax advantages. It can make your profit margin appear lower, thereby lowering the taxes you have to pay.
Depending on the type of products and what’s more convenient for you, you’ll have to choose which of the inventory management techniques you wish to follow.
4. Data-driven inventory management
As AI and data processing technologies continue to evolve, it’s hard to ignore the advantages that data-driven inventory management techniques can deliver. Powerful tools and data-processing platforms can help you analyze large volumes of data to make the right business decisions which can be highly beneficial if you are running a cross-border shopping platform. For instance, a thorough analysis of market data will give you valuable insights into which products to stock up on.
Cloud solutions are particularly helpful in this regard as physical databases of such size aren’t a feasible option. Transactional, historical, and referential data is extremely valuable when it comes to business strategies. Companies of every scale should consider leveraging data to tailor their inventory management techniques.
5. Demand forecasting
Demand forecasting is one of the most crucial data-driven inventory management techniques. Also known as sales projections, it involves processing historical data to project the demand for a certain product in the future.
Remember we mentioned sales projections are crucial to safety stock management? Sales projections can show you which products to have at hand at all times and in what quantities. This ensures that you always have an adequate inventory of every product while preventing excess stocks.
6. Get an inventory management software
Good inventory management software can be a game changer. Optimize your inventory management techniques by investing in software that provides you with real-time updates and insights. Ultimately, it’ll help you manage your inventory with greater efficiency and accuracy.
7. Evaluate supplier performance
Even if you don’t dropship, your suppliers still play a huge role in your supply chain. As a part of inventory management, you should evaluate the performance of your suppliers. Is there a supplier that’s constantly adding to your supply chain costs due to unstable performance? You might want to consider moving away from them.
Especially in terms of International Shopping, focus on the suppliers that offer you the best rates and consistently deliver good performance. They’re the ones you’d want to continue working with.
Successful inventory management is all about transparency, accuracy, and efficiency. Not every business can attain the same level of success with the same strategy. You’ll have to shape your inventory management techniques based on the scale of your business, type of products, availability of resources, etc.
Fahad Khan is a Product Manager and digital marketing enthusiast who works at Ubuy Technologies.
Content marketing, PPC, email, and social media marketing are among his areas of expertise. He has
been exploring the field of digital marketing to share his pearls of wisdom with the whole world. He
enjoys working on different niches and creating valuable content for readers.