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How to Evaluate the State of Your Inventory Management

How to Evaluate the State of Your Inventory Management

Small and medium businesses face inventory risks every day that, if not managed properly, can have a detrimental impact on the bottom line. Too little inventory means missed sales and dissatisfied customers, while too much product means more space, shipping, and handling costs.

However, with the correct preparation, these concerns can often be diagnosed well in advance. In order to conduct a routine checkup of your inventory management process, ask yourself and your team the following questions as you analyze your goals for a new month, quarter, or year.

What system do we use to label inventory?

It's not enough to have a general understanding of your inventory's contents. When you label what the product is and what type of stock it is - whether it's replenishment, surplus, or obsolete stock – inventory tracking becomes much more intuitive. This method of labeling is a fundamental best practice for better inventory management.

Are we checking the safety stock levels on a daily basis?

Another critical activity that is often ignored is checking safety stock levels on a regular basis. Examining inventory at a granular level on a regular basis goes a long way toward ensuring that inventory data is as current as feasible. 

Although it may appear to be a time-consuming activity, adopting automated technologies may help keep close tabs on surplus stock in real time and guarantee that any problems that develop are dealt with swiftly.

Are we keeping track of unsold inventory?

Businesses and warehouses are likely to have the most trouble tracking distressed goods. One of the most typical reasons for significant amounts of distressed inventory is becoming overstocked when a product does not sell quickly enough. 

Track how long certain goods has been in the warehouse, in addition to the binary labeling structure outlined above, so you can take it out before it hits the point of no return. Donating distressed goods is a realistic choice if you are unable to sell it. You can deduct donated inventory from your business's tax return, allowing you to "pay it forward" in your community.

What is the most profitable inventory we have?

Many organizations strive to maintain a constant inventory level across all of their items, regardless of whether they are selling well or poorly. However, rather than trying to maintain the same amount of goods across the board, it's critical to identify your most productive products and focus purchases on them. 

Keeping a large amount of inventory on a product that sells infrequently raises costs, whereas running out of stock on a product that sells quickly results in lost revenue.

What are our plans for sales and operations?

Inventory management is often kept separate from sales and operations planning in a surprising number of firms. By combining the two, you can get a clearer picture of your entire business activities, which leads to improved inventory control. 

Aligning with sales and operations can lead to more accurate inventory forecasting, which is the process of calculating how much of a product or service consumers will buy based on data. 

Your estimate will be informed by historical sales data and current product life cycle demand, thus including sales and operations in planning is critical for making accurate predictions.

Do we know what's causing the surplus and obsolete stocks?

Excess and obsolete stock require root-cause analysis to understand how they are linked, which is essential for developing action plans to address these issues. Two task forces with synchronized action plans are formed by organizations with effective inventory management. 

The first task force investigates the underlying causes and proposes solutions for reducing the generation of new excess and obsolete stock. 

The second focuses on how to more successfully sell off the shares. This gives the sales team a list of the most popular excess or obsolete products to push, ensuring that they're discounting certain excess items.

A healthy inventory translates to a healthy bottom line. By addressing these questions to your staff on a regular basis, you can ensure that your fulfillment center procedures are always productive, resulting in stronger customer loyalty and better returns.

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