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Follow These Three Steps To Develop Your Inventory Management Strategy
Inventory Management Strategy is frequently left to chance without any actual planning. However, ordering, storing, and using your inventory strategically can be very profitable.
Integrating an e-commerce inventory management system can help you reduce costs and losses while increasing your productivity and customer satisfaction. It is also beneficial for businesses to plan for more specific levels of inventory required to meet demand.
Here are the three steps to developing an inventory management strategy for your business.
1. Determine the Number Of Items To Keep In Stock Inventory Management Strategy
The first step is to establish the number of days of supply needed for each item. It would help if you had sufficient quantities to meet your customers’ demand or, in the case of raw materials, your production needs. The ideal stock level depends on the type of item and the industry.
Several other factors are also occupied into account: variation in demand, costs, lead times, supplier reliability, and the accuracy of sales forecasts and inventory tracking.
Finally, do not forget to consider your production and distribution strategy and, more generally, your business strategy. For example, is it beneficial to bring in a whole load of products to qualify for a rebate? What will you do if you end up with excess inventory?
“You could decide to no longer stock certain products whose sales volume is too low and choose to order them only on request.”
Once you have set your goals, be sure to track your actual inventory usage and supplier performance to optimize your inventory levels.
2. Decide Where To Store Your Inventory Management Strategy
When it comes to determining where to store your inventory, “it’s important to reduce handling and transportation. “For example, we can store raw materials or products in progress near the machines that will use them.”
You may prefer to keep other items, such as finished goods, in one storage area. It is easier to assess the amount of stock available when all the things are a group in one place.
Choosing the right strategy can be more difficult if your business has multiple locations. You will need to strike the right balance between your service level goals (e.g., the need to have inventory close to your customers) and the costs of operating multiple warehousing facilities.
Check regularly that your stocks are correctly marked, rigorously recorded in your system, and stored in the right place.
3. Determine How To Restock
Another important aspect of your strategy is how you replenish your inventory. You have two options: automatic replenishment or replenishment on demand.
The so-called “automatic” method, which is also the most traditional, consists of restocking stocks according to sales forecasts. “This may be a good approach if your demand is stable or if you are making significant savings by ordering or producing large quantities of product,”
The main risk to your business is ending up with excess or insufficient inventory due to inaccurate forecasts.
The so-called “on-demand” method consists of restocking stocks based on product demand. In other words, you replenish your inventory at the rate of the orders you receive. It is a lean technique, which may prove to be the best solution if you face large fluctuations in demand. Such an approach can yield excellent results if your suppliers can provide you with short lead times and efficient delivery service with few errors.
You can also choose to take an intuitive approach for some of your inventory and an on-demand system for others.