Inventory is often the endpoint in a long supply chain between producers and sellers. Businesses establish partnerships and relationships which form complex maps for buying and selling. After production, a product travels to a supplier, distribution center, or transporter before reaching a business. Following that, the items enter an inventory.
Products in the inventory are sometimes in a critical state. Circumstances like demand fluctuations, natural disasters, and external conditions affect inventory needs.
How can a business prepare for constant changes in the necessity and availability of products? A well-managed inventory separates adequate preparation from a failure to supply.
This article contains some strategies for inventory management for businesses of all sizes. Following these procedures will help any team prepare for unforeseen circumstances, skillfully address consumer demand, and reap the most benefits from a supply chain arrangement.
Create and Maintain a Safety Stock
One of the best tactics for inventory management is to amass and maintain a safety stock. As the name implies, safety stock is a portion of reserve inventory to deplete under unprecedented circumstances.
Consider a viral trend that leads to the popularity of a certain food. Once standard supplies deplete, businesses can tap into a safety stock for that item to alleviate the pressures of high demand. After the trend dies down, managers can regrow the emergency supply in preparation for the next unexpected event.
Maintaining a safety stock involves knowing when the time is right to regrow the inventory. While nobody can predict the future, the following strategy will reliably calculate the best times to do it.
Learn and Chart Consumer Demand
While tracking consumer demand won’t help a business avoid the unexpected, it will certainly help it feel better prepared. Depending on the product, popularity can be either predictable or unpredictable, but some techniques work well in both cases.
For many products, the public interest corresponds to seasons, months, holidays, and more. For instance, a pharmaceutical company is far more likely to sell allergy medications at the beginning of spring than at other times. Knowing when demand will increase lets businesses chart a demand forecast.
Once a business is aware of its demand forecast, it becomes critical to plan ahead. Calculating daily usage allows overseers to plot how much of the product they will need when it is at its most popular. Remember to order with delays in mind while avoiding waste.
However, not all items are as clear-cut regarding demand cycles. In those situations, a business should chart its product popularity over time and search for potential patterns. That way, incoming spikes are predictable with relative certainty. Incorrect predictions are bound to happen, hence the importance of safety stock.
Knowing how demand will fluctuate is key for having the correct items in an inventory. Several supplier delays tend to occur during orders, so overseers must account for the downtime when buying in advance of demand spikes. If a business can predict shipping delays, it can recognize the best times for tapping into a safety stock.
Reducing Waste From Overstocking
Inventory management can be delicate, especially when drawing the line between emergency surplus and overstock. In produce and other industries, too much stock results in waste. Learning and charting consumer demand drastically reduces expensive overages.
When plotting demand, take note of the highest point of daily usage of every product at any given time. This maximum value is what a company should order per interval. Keep a modest surplus in the safety stock to account for any unexpected needs. To avoid waste, follow the trends and do not preemptively order.
Prepare for Fluctuating Suppliers
Consumers aren’t the only sources of unpredictability. Incidents like viruses, natural disasters, new technologies, and trends greatly affect producers and suppliers as well. A business is in deep water if its only providers cannot work at an expected capacity. Therefore, it is critical to anticipate fluctuations in suppliers.
Establishing a Supply Chain Network
The best defense against fluctuation is a strong, interconnected network of suppliers. Diversifying producers allows businesses to maintain production when one source wavers. Sourcing from multiple sites does often incur higher expenses, but the payout outweighs a potential stocking crisis.
However, building a network means more than simply forging business relationships. Someone in charge of selling should maintain regular contact with each supplier to assess their production status. Through communication, business owners can better anticipate which suppliers may fluctuate and act accordingly.
For instance, imagine a local farm supplier who anticipates a storm affecting his crops. A distributor who contacts the farmer may learn this information, enabling them to shift focus towards other growers until the difficult situation passes.
The larger a network, the more potential a business has to stay stocked at any given moment. However, communicating with each producer can be a monumental task for one person.
Try a Management Plan or Software
Each of these strategies greatly helps to anticipate inventory needs and reduce waste. However, between suppliers, customers, and businesses, it can be a lot to manage. Thankfully, management plans and inventory software can revolutionize and simplify this process.
Special software is ideal, but an analog management plan involving calendars and spreadsheets can help organize information about products and purchases. This method is functional for small businesses primarily regulated by one manager or overseer.
In larger businesses, a team collectively analyzes and makes decisions regarding supply and demand. In these cases, inventory management software is a necessary tool. Typical versions come with alarms, notifications, calendars, charts, and detailed logs of what is present at every storage site.
Inventory management software can automatically reorder products at certain thresholds and calculate accurate measures of expected stock and demand. These programs also afford communication between members of a team to facilitate collaboration in interpreting predictive statistics.
Successfully managing inventory is mainly about organizing. The right tools and practices allow businesses to keep figures clean. They also keep business relationships healthy while adjusting to the ever-changing market. Any business employing some of these strategies can enjoy accurate stocking, meet demands, reduce waste, and increase profits.