Inventory costs or those related to ordering, safekeeping and management of different types of inventory are essentially non-value adding expenses, which all businesses can benefit reducing or eliminating altogether if possible. A properly managed inventory system helps companies to free up resources that can better serve in other value-adding pursuits. Try these tips to get started.
Get on Top of the Situation
The first step of any journey is often the hardest, and that includes your inventory management endeavour. If your inventory situation is in shambles—no record of physical stock levels, no values assigned or goods not properly segregated—start with getting these in order before anything else.
Getting on top of your current stockroom or warehouse situation is essential to formulating a successful cost-saving inventory management approach. Work towards sorting inventory between raw materials, work in process and finished goods. Getting organised can powerfully bring money back into the business by getting the ball rolling towards an efficient inventory management.
For those businesses that have expansive retail spaces in a casual setting, you may even consider eliminating the stockroom. Set up long span racking units and keep all the stocks in the retail space. This eliminates the “out of sight, out of mind problems” related to inventory management. By housing stock in the retail space, staff can easily monitor inventory status reducing obsolescence costs and eliminating expenses related to warehousing.
Formulate Reorder Points
Once the warehouse or stockroom is sorted and squared away, formulate reorder levels for each stock keeping unit appropriate for your business. Consider your current relationship with your various suppliers, establish an agreement on delivery lead times, and document this deal. Establish a Safety Stock Level based on your average daily sales. From this, you can now compute the Reorder Point and set up alerts that trigger the reorder process when the reorder point threshold is breached.
By giving your inventory system some time and attention, establishments can immediately benefit in not only costs but other areas as well, as it can free up or direct resources to other value-adding activities such as marketing to grow the business.