Inventory management is one of the core-operations that contributes to the success of a retail operation. In principle, it can be stated as the process by which a retailer ensures the availability of stocks in accordance with the emerging demand. The process has to ensure that neither there is an exhaustion of in-demand stock nor over-accumulation of slow-moving stock.
When the process meets both criteria, it is said to be a successful inventory management operation. Effective inventory management allows the retailer to run the operation with more information which could include – product locations, quantities of SKUs, fast- or-slow-moving stock, profit margin according to product type, ideal quantity of inventory, quantities to reorder, products to discontinue, the effect of seasons on sales, etc.
All-in-all inventory management is critical to the generation of profits for the retailer. The operation should be mounted in such a manner that the business does not miss out on a single sale due to out-of-stock scenarios while maintaining optimum stock levels without the stagnation of invested capital.
The write-up is an attempt to shed light on the major aspects of how to manage inventory and how to create an inventory management system using the points mentioned here. These said processes can be implemented through standardized processes or Standard Operating Procedures (SOPs). Let’s now turn our attention to major pointers, explained below to gain insights and understanding of inventory management:
- Auto Re-order Level: The entire management of inventory in a company is standardized wherein reordering of stocks is automated based on pre-defined criteria. This would divide the stock quantities into fast- and slow-moving categories. By the criteria, the fast-moving stock or the “in-demand” stock should not go out of stock. Meaning, the reorder process gets triggered when the level of the stock reaches a pre-defined measure. On the other hand, the system also has to ensure that slow-moving stocks or “low-demand” do not get ordered above a certain level to prevent the over-accumulation does leads to a “dead stock” situation.
Such a system can even ensure there is better cash flow management where there is more capital invested in a fast-moving stock with less emphasis on slow-moving stock. This process can be implemented by the incorporation of SOPs which can play a critical role in minimizing wastage while increasing the operational efficiency of the entire operation.
- Inventory Analytics: This process is closely aligned with inventory optimization wherein the retailer makes the stock quantities available as per the demand and supply in the necessary quantities and the right locations. The calls for retailers carry out ABC analysis for the stock, wherein the stock is divided into three classes based on the relative priority of an item in line with demand. Here, 5-10 percent, the most important are classified as “A”, the next tier “B” consists of 15-25% of the inventory, and the rest is classified as “C”, the least important of the lot that would consist 65-80% of the inventory. Such classification allows the retailer to eliminate the carrying costs and reduce “dead stock” to a considerable extent.
Along with the process, retailers must have in place corrective measures to mitigate unplanned demand spikes. For such events, predictive activities such as inventory forecasting must be made part of the process to resolve irregular demand concerns. Inventory analytics can be made a standard procedure in inventory operations where companies generate an abundance of data through their regular sales transactions. YRC comes with expertise and experience in devising SOPs for all such processes associated with the best way to manage inventory.
- Inventory Handling Guidelines: The objective of this practice is to avoid damage to the inventory during the coordination and management of the same. This would include providing proper equipment for handling the inventory for the workforce. It would include providing mechanized equipment for moving stock, proper racks & bins for storage taking account of weight capacity.
Next, the process to manage inventory effectively should have the least number of touchpoints. Meaning all physical counting and associated quality checks should be a one-off affair without the scope for it occurring in multiple stages. With such standardization of process, the probability of disposal of stocks due to damage amounts to a minimum.
- Inventory Audits: This is a procedure to gauge the quality of an inventory at any given time. And primarily it can be classified into two categories – a global audit and a sample audit. The global audit would encompass the entire inventory, while the latter would only take into consideration a specific segment of the entire stock. The audits are mainly focused on ascertaining any damage to the existing stock, checking for the expired stock, and reconciling the stock count on the system versus the inventory floor.
Besides this, inventory audits differ when it comes to high-value and low-value goods. While in the former each SKU is given consideration, the latter only takes into account a small sample of the entire stock. Such standardized procedures when implemented ensures that there are minimal issues to the product when it reaches the customer, reducing possibilities of complaints emanating from the customer’s end.
Benefits of Inventory Management
Now that we have spelled out the process that can drive better inventory management, let’s delve into the details of the benefits associated with inventory management, here it is:
- Improves the accuracy of inventory orders: Proper inventory control would allow the retailer to avoid product shortages and allow the warehouse to store just enough without letting-in more than the required quantity.
- Ensures an Organized Warehouse: Through inventory management, a retailer can place their best-selling goods in the most accessible locations. This allows accelerated order fulfillment and keeps customers satisfied.
- Saves Time and Money: The retailer is not compelled to do an inventory recount of the necessary management procedures are carried out as per established protocols or SOPs. Also, with better inventory control, the retailer would not spend capital on the slow-moving stock.
- Improves Efficiency and Productivity: By putting in place devices like barcode scanners and other inventory management software applications will help increase productivity and performance to unprecedented levels.
- Improves the Scope for Repeat Customers: Through successful inventory management, there are minimal chances of negative feedback from customers improving the scope of retaining customers who over time would become brand loyalists.
About YRC: Inventory Management Consultants
At YRC, we come with expertise, knowledge, and experience to ensure successful implementation of inventory management techniques. By implementing SOP for inventory management, our clients have been able to increase inventory turnover, improve profitability, and have managed better cashflow. We come with the specialty of creating system-integrated and financial feasibility linked SOPs that are system-dependent and less person-dependent. This ensures that the SOPs seamlessly get integrated into the existing infrastructure.