Inventory management is essential for all businesses. The biggest challenge that a business faces regarding inventory is balancing demand with adequate supply. If there is no inventory management strategy in place, the company runs the risk of running out of inventory, resulting in lost sales and customers or holding stock that does not sell. Hence no business can expect to run efficiently without a proper inventory management strategy in place.
Inventory optimization results in improved inventory turnover and enhanced service levels. Inventory holding and obsolescence are also significantly reduced as a result.
To have a comprehensive Inventory Management System (IMS), you need to consider the following:
Table of Contents
Demand and Supply Planning
A cross-functional Demand and Supply planning process is necessary, typically involving Sales, Production, Supply Chain, and Logistics departments. This process can be excel based or managed through software specifically designed for this purpose. The Demand and Supply planning process can also be implemented using the company’s Enterprise Resource Planning (ERP) system.
Inventory Storage
Choosing the right locations for inventory warehousing is very important. Finding a warehouse close to your suppliers can result in shorter lead times, making your business more effective.
Alternately you can also use 3PL warehouses and fulfillment centers for supply chain efficiency if that makes more business sense.
Inventory Management and Tracking
Businesses can either implement an inventory quantity, location, and lot code tracking process within their ERP systems or choose an inventory management software suite that best fulfills their needs.
Vendor Agreements
Once you have established your purchase/production schedules based on demand planning, setting agreements with suppliers is recommended. This will ensure that you do not run out of raw material and packaging material inventory.
Obsolete inventory
Since there are significant holding costs associated with inventory, having a robust stock obsolescence strategy is very important. There should be a process to identify obsolete stock and a policy to deal with it timely.
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