Using inventory management software helps businesses control costs and improve efficiency. It reduces inventory mistakes, such as mispicks, which can cost money and hurt customer experience. It also allows for cycle counting, which spreads reconciliation throughout the year instead of a full count at year end.
The first step to effective inventory management is to categorize your products based on pricing. This is known as ABC analysis.
Product categorization
Product categorization is the process of dividing inventory items into logical categories. It is an important part of inventory management because it allows businesses to cut costs efficiently by reducing the amount of non-selling products, while also maximizing sales and minimizing stockouts.
A good categorization system should take into account the Pareto principle, which states that 80% of a business's effects come from 20% of its stock. This allows businesses to focus on high-demand, low-cost items. In addition, it helps businesses reduce stockouts by ensuring that essential products are in enough stock.
Product categorization also helps to optimize warehouse storage and physical distribution systems. A poorly organized warehouse can lead to product shortages, slow delivery times, and a poor customer experience. It can also lead to inaccurate product listings on platforms, resulting in mismatched search phrases and lost revenue opportunities. By centralizing and automating product categorization, businesses can avoid these issues. They can achieve this by using a taxonomy management system that provides accurate, SEO-optimized product hierarchies at scale.
Ordering
Order management enables businesses to quickly fulfill orders for products from customers. It also reduces the amount of dead stock, which are goods that have gone bad or are no longer relevant. This type of waste is costly, especially for perishable products like coffee or tea.
Keeping inventory levels optimized is an ongoing process. This involves constantly adjusting replenishment cycle lengths, safety stock, and other factors that influence demand. These changes are based on sales velocity, upcoming promotions, and market trends.
To avoid overstocking, use a reorder point formula to calculate the ideal quantity of each product you should keep on hand. This minimizes both stockouts and deadstock, which are both expensive inventory mistakes. Another technique is to practice Just-in-Time (JIT) Logistics and Distribution. This method ensures that raw materials are received only when they are needed for production or customer orders. It also helps reduce storage costs by eliminating waste and optimizing workflows. Another way to improve inventory control is to use cycle counting, which spreads reconciliation throughout the year instead of performing a full count at the end of each year.
Picking
When an inventory management system is linked to a warehouse automation platform, picking operations become streamlined. A system can analyze staff availability, equipment, warehouse layout and order information to create optimal picking processes on a case-by-case basis. These process improvements reduce walking time and other costs, which results in higher productivity and reduced outbound fulfillment costs.
Picking methods include batch picking, zone picking and cluster picking. During batch picking, a picker pulls multiple orders into one large container or tote before taking the combined inventory to the packing area. This method minimizes the number of times items are picked up in error.
Replenishing storage bin and tote locations is a critical part of the inventory management process. Throughout the day, stock in these locations will deplete as pickers work to fulfill orders. An inventory management solution ensures replenishment happens in a timely manner to prevent workers from running out of stock. In addition, a solution can prioritize replenishment of frequently ordered products so they're available when needed.
Storage
It is important for businesses to optimize their inventory storage both in the system and physically. Inefficient storage can increase order fulfillment costs, decrease employee productivity and result in out-of-stock situations for customers.
For example, if you have a lot of consumable products that are highly demanded but not easily replaceable, it may be beneficial to keep extra stock on hand to mitigate risks and ensure the business can fulfill orders even when supplies aren't readily available. Other examples of risk mitigation techniques include using lean manufacturing and Six Sigma methodologies to minimize waste, and setting safety stock levels based on relative sales trends.
In the physical storage environment, it's also helpful to follow first in, first out (FIFO) practices. This allows you to sell older inventory before newer goods come into your warehouse and prevents the possibility of perishable items spoiling. This is particularly important if you deal with seasonal demands, economic shifts and other market fluctuations.
