One of the most valuable assets that a company can have is inventory. Be it retail, manufacturing food services, or any other inventory-intensive sector, inventory forms the spine of a business. A shortage of inventory is a potential problem you do not want to have. That’s why inventory management is a lesson that every business owner, retailer, and manufacturer needs to know.
Except in accounting, inventory can prove to be a liability because of several factors, such as the risk of spoilage, theft, demand shift, and damage. If not used up and sold in time, it becomes a major pain to the company’s profits as it may have to be disposed of at a lower price or be destroyed at the worst.
To prevent such a problem from occurring, one must look at inventory management as one of the important factors dictating the functioning of the business. The key is in knowing when to restock, how much to sell, and what price to sell at. These decisions can easily help in determining the basis of your inventory management.
Inventory management isn’t the same for every business. For instance, an FMCG company may prioritize optimizing stock levels to meet demands, minimize waste, and ensure timely deliveries. On the other hand, an oil depot might decide on precise tracking of fuel stock levels, optimization of storage capacity, timely replenishment, and safety regulation adherence. Knowing what suits your business is essential before embarking on the planning section of your inventory management.
Every business owner aims to maximize their profits and minimize costs. While inventory management might seem like a huge expense, it is quite easy to slash its costs if done right.
Here are three proven ways you can reduce your costs in inventory:
- Optimize Inventory Levels:
Forecasting demand is crucial for running a business. It helps businesses to slim their losses by adjusting their inventory to the demand levels. For instance, the risk of stockouts or extra inventory is minimized, leading to significant cost reduction and loss. One may use statistical forecasting, where methods like moving averages and ARIMA models are used to empirically identify trends and patterns of business and therefore demand. Another alternative is machine learning, where a vast amount of data is correlated with economic indicators and weather patterns for predictions of demand. Knowing your demand well helps to reduce potential losses in business caused by overestimation or underestimation.
- Implementing Effective Inventory Management Systems (IMS):
Inventory Management Systems (IMS) are a proven way to reduce costs as they provide timely information on inventory levels, locations, and movements. This offers enhanced decision-making, improved accuracy, and reduced human errors to the business. IMS is equipped with providing valuable data-driven insights on trends, inventory turnover rates, and demand forecasts so the business can forecast based on analytics. It also has barcode scanning and RFID technology that takes care of inventory tracking from receiving to shipping. IMS is extremely efficient and user-friendly, therefore, helpful in inventory management practices and reducing costs.
- Optimizing Supply Chain:
Cultivating long-term partnerships with reliable suppliers is extremely important, as it may translate to higher benefits and favorable terms for business owners. Knowing how to minimize waste in supply chain stages by discarding excess inventory and defective products helps in the reduction of future production costs. Additionally, a reduction in delivery time by coordinating with suppliers is also helpful in improving efficiency in transportation. The ‘Just-In-Time’ inventory procedure helps to reduce storage costs by procuring goods whenever deemed necessary.
With these three steps, you may have lesser costs on your inventory management and higher profits in your business. To know more about inventory management services, contact FwD Space today.