Effective inventory management is crucial for businesses of all sizes to maintain smooth operations, optimise costs, and meet customer demands. Whether you’re a small retailer or a large manufacturing company, implementing the right strategies can have a significant impact on the longevity and growth of your enterprise. As leading warehouse suppliers, VLT Logistics understands the complexities of establishing efficient inventory management tactics, which is why we’ve outlined 5 practical tips to safeguard the internal operations of your business.
1. Track your Inventory
Warehouse functionality is dependent on effective inventory tracking. When errors occur in inventory tracking, customer satisfaction, potential for company growth and financial management are all impacted.
Fast-moving items may require more frequent restocking, while slower-moving items might benefit from strategic marketing efforts or reevaluation of their place in your product catalogue.
To effectively track your inventory, the following should be considered:
Reorder points:
Reorder points establish the minimum volume of individual products that should be stored in the warehouse. This allows stronger communication between the warehouse and distribution teams, and ensures the warehouse is always stocked with enough of each product to send to customers. When your stock reaches the reorder point, you will be notified that more stock is required.
This number will fluctuate throughout the year and as the company grows so continued evaluation is essential.
Align your stock levels with your ordering system:
By updating your online platforms with the correct levels of stock, you ensure that your systems are aligned, and the website will update as soon as merchandise is no longer available, reducing the potential for disappointed customers.
Regular stock level audits:
Software systems are growing evermore intelligent, making it easier to monitor your inventory. However, physical inventory lists and regular audits are recommended to ensure your system is correct.
By comparing your physical inventory to your online inventory, you’ll be able to swiftly identify and respond to complications or errors in your inventory count, as well as continue operations should the system malfunction.
Third-party logistics companies will be able to implement this on your behalf.
Real-time data warehousing:
Real-time data warehousing provides up-to-date information from a centralised system, removing human error from the warehousing process across various jobs including:
- Pick and pack
- Kitting
- Labelling
- Preassembly
2. Implement the 80/20 Inventory Management Rule
The 80/20 rule, also known as the Pareto Principle, posits that approximately 80% of effects come from 20% of causes. This principle implies that a significant portion of sales from your inventory are derived from a small percentage of your products.
To implement the most effective inventory management strategy possible, identify the highest performing items and concentrate your efforts on optimising their management.
This could involve strategic placement within your warehouse for easier access, negotiation of favourable terms with suppliers, or the implementation of targeted marketing campaigns. By directing your attention and resources toward the most impactful products, you can maximise efficiency, reduce carrying costs, and enhance overall profitability.
3. Forecast Demand Strategies
Demand forecasting refers to the strategic use of historical data to estimate future buying habits of customers. It analyses potential demand based on a broad range of factors including market trends, seasonality and internal data.
Implementing forecast demand strategies allows you to align your inventory levels with anticipated sales, creating efficient use of space and saving costs.
Demand forecasting techniques leverage analytics over a set period of time, but the following techniques are advised for effective inventory management:
Macro-level demand forecasting:
Macro-level demand forecasting is predicated on the general overview of external market conditions to inform your internal strategy. It consists of factors such as:
- Economic conditions
- Consumer trends
- Competition
This helps to understand financial challenges, material shortages and the potential for expansion.
Micro-level demand forecasting:
Micro-level demand forecasting likewise considers external factors that could impact your inventory management, but it focuses on specific industries, companies or customer segments.
This strategy is vital in determining the demand for your product, thus informing ideal inventory levels.
Long-term demand forecasting:
Long-term demand forecasting is more appropriately applied to the identification of seasonal strategies, annual fluctuation in market demand and production capacity. This form of data is collected over a period longer than a year, and provides a long-term projection of the brand’s future.
With regards to inventory, this can aid in the prediction of production volume, product type and the scope of warehouse and supply chain range required.
Short-term demand forecasting:
Short-term demand forecasting is conducted over a short period of time and informs day-to-day inventory control measures. This strategy is applicable to promotional planning, as well as delivering an overview of staff capacity.
Passive demand forecasting:
One of the most simple forecasting techniques, passive demand forecasting refers to using internal sales data to predict future sales data.
This makes it useful for companies who have historical data to extract from, and applies to businesses who aim for steady year-on-year sales rather than ongoing growth.
Active demand forecasting:
Active demand forecasting is a technique best used by start-ups and businesses experiencing rapid growth.
4. Use a holistic approach
Effective inventory management takes into consideration more than the simple day-to-day movement of stock.
Tracking the capacity of your operations as a whole is just as important as counting how much stock comes in and out of the warehouse. You need to consider your assets, equipment, in-house personnel, and security measures.
Do you have the capacity for new stock? Is your workforce satisfied and working to an efficient, capable standard? Is your loading dock stocked with the correct machinery to ensure no stock is damaged or lost upon exit or arrival?
Consider every point of contact your stock has along the supply chain and throughout your warehouse and find ways to fine-tune it.
5. Regularly audit and optimise
Effective inventory management is not a one-time task but an ongoing process that demands regular evaluation and optimization. Conducting regular audits allows businesses to identify discrepancies, obsolete stock, and inefficiencies in their processes.
These audits provide valuable data that can be used to make informed decisions about refining inventory management strategies.
Analyse the insights gathered from audits to adjust reorder points, renegotiate contracts with suppliers, and optimise warehouse layouts for better accessibility. By staying proactive and adaptive, businesses can fine-tune their inventory management practices to align with changing market dynamics and maintain a competitive edge.
Managing your inventory effectively begins with the peace of mind that secure warehouse space delivers and VLT Logistics ensures your goods are taken care of. Our warehouse storage and warehouse to rent facilities are manned by highly experienced warehouse teams, backed by 24 hour security and real-time data warehousing software, so your time can be spent improving business operations.
If you’re interested in outsourcing your logistics to a fully trained team who put your access and understanding first, get in touch today to discuss your requirements.