7 tips for better inventory management

Inventory management manages the order, the storage, and the use of your inventories. It involves both the stock and the flow of materials throughout your business. It includes raw materials, components, semi-finished products, and finished products.

In this article, you will find 7 tips for better inventory management.

1. Consider the volumes and demand patterns
2. Consider an adequate level of safety stocks
3. Consider an adequate level of purchase lots
4. Review the manufacturing batch lots
5. Implement audits with the right frequency
6. Transform your working areas in clean and organized workplaces
7. Use a software system that supports the inventory management

Let’s see in more detail each of the tips:

1.   Consider the volumes and demand patterns

You should consider the flow of demand for your products. Some of them may be innovative products with seasonal launches, while others will be in uniform demand throughout the year.

Consider that the demand may be:

– with increasing or decreasing trend over time

– seasonal

– erratic

– cyclical

– one-time launch

You have to understand the characteristics of your products, as well as the industry and the market in which you operate.

Secondly, consider that your inventories change the status continually. That means that even when you have available stock in your warehouse, you may use it soon for a confirmed customer order. Always consider the status of your materials, such as among others:

– Available

– Reserved

– In transit

– Shipped

– Safety stock

– Out of specification

2.   Consider an adequate level of safety stocks

You must maintain a safety inventory. It depends on the level of uncertainty. As a general rule, the more uncertain, the higher the safety stock. Minimize or avoid the urgent purchases, paying high prices for your items, because you are buying at the last minute.

Maintaining safety stock does not mean that you should oversize your warehouse with an excess of materials. Otherwise, you will maintain a high financial cost for keeping your money immobilized in the form of stocks. You also may have space limitations, which do not allow you to have excess stock.

Finally, review your safety stock levels periodically. Consider that demand volumes are dynamic and consumer preferences may change.

3.   Consider an adequate level of purchase lots

When buying items for your business, do you ensure your purchase quantities of material you need? Quantity purchases are always effective when you use them instead of letting degrade in your warehouse. However, you must find the correct level of purchase lots; neither too much nor too little. Behind your inventory purchases, there are financial outlays that you could use to get other resources for your business.

Make sure that your opportunity to buy in quantity is not just a purchase saving and dimension of the overall impact on the business. Make sure you will effectively use the materials. You can plan an open purchase order with your supplier and make frequent shipments according to your demand levels.

You should also foresee if receiving small batches will generate inefficiency of purchases. You may deliver your products with delays to your customers. Optimize the work for your buyers and reduce the risk of product shortage.

4.   Review the manufacturing batch lots

So far we have reviewed the size of the purchase lots. But … How is the movement of materials within your production plant?

Every time you place a work order into production, have you determined the material lot sizes that the warehouse is going to deliver to your plant? Create homogeneous units of material movement within your organization.

For example, if you use a few ounces or grams of salt as an ingredient for your production batch. Would you deliver a 100 kg bag to production each time you place an order?

Mis-sizing your batches will result in excess movement of materials in your plant, loss of quality of materials, or ingredients. Avoid extra work that does not add value to your work team.

5.   Implement audits with the right frequency

Are you sure that the amount of inventory in your accounting system matches the actual amounts? Your inventories can often be lost, stolen, damaged, or simply not found in your warehouse.

Make sure personnel are well trained and record material transactions in the system. This refers to the material reception, delivery, and movements within the warehouse.

To resolve this issue, you must implement inventory audits at the correct frequency. You should set more frequent calendars for those critical and valuable items (A-items) with tight control. Reduce the frequency for those items of low economic value and that is easy to replenish (C-items).

6.   Transform your working areas in clean and organized workplaces

You should consider the right space for your inventories. Do you store your materials in corridors or places exposed to bad weather conditions? Your inventories are an economic resource that will be converted into a product for your clients, and therefore you must protect them. Keep the appropriate space for each inventory:

• Raw material in the materials warehouse
• Finished product in the finished product warehouse
• WIP in plant
• Other materials, such as spare parts, tools, health and safety items, office supplies, or maintenance spare parts.

Consider that you not only need storage space, but also for handling, reception, picking, packing, and dispatching areas.

As a second part, you must consider keeping your work areas organized and clean. There are many continuous improvement tools to help you to keep your inventory locations organized. You can carry out, among many others:

– Layout analysis

– Material, equipment, and personnel flowchart

– Analysis of the frequency of materials movement

– Cubic utilization of your warehouse

– Housekeeping practices

– Visual tools

7.   Use a software system that supports the inventory management

Maintain software that allows you to accompany the movement, storage, and use of your materials. The software must be able to contemplate, among other functions:

• Amount of inventory at each location
• Inventory value
• Location of inventories in warehouses and plant
• Inventory in transit, either raw material to receive, as shipment of the finished product
• Accounting for materials and associated cash flows
• List of materials required for a finished product unit
• Efficiency in the use of materials

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