Inventory Management has been a topic of much interest in business management discourse in the aftermath of the Covid-19 pandemic. With major supply chain delays and surging demand, businesses saw their inventory management functions struggle to cope with the sudden influx of demand with limited supply. A post-coronavirus 2020 survey by Statista on the matter indicates that roughly one-fifth of businesses planned to revamp their inventory management process and strategy to better prepare for such scenarios.
Going into 2023, businesses must be prepared to weather the inevitable recessionary spell to come, one of the worst in the last four decades, according to economists at Bloomberg. With this impending wall standing before the business community, the best course of action is to look inward into the business and start optimizing business processes to brace for impact. Inventory management should be at the top of the priority list for inventory-carrying businesses such as the retail sector. In this article, experts at Expertise Accelerated highlight some simple and effective inventory management tips to optimize the function in preparation for 2023.
Table of Contents
10 Simple Inventory Management Tips for 2023
Take Stock of the Inventory
The first step to optimizing a business’ inventory management systems is to take stock of the inventory. To elaborate, entrepreneurs must first have a clear picture drawn in front of them of the flow of inventory through the business. What products does the business carry? How much does it carry? How much does it need?
Answering questions like these is the first step. By analyzing the business’ sales data, entrepreneurs can get a good idea of their customer base’s spending habits, and likewise shift their inventory stocking to better accommodate demand. Furthermore, by investigating the business’ sales patterns and inventory management trends, entrepreneurs can discern any inefficiencies that must be dealt with.
Chart Reorder Points (ROPs)
One of the most common cases of mismanagement in the retail sector is a poorly crafted Reorder Point chart. As defined by Zoho, “a Reorder Point (ROP) is a specific level at which your stock needs to be replenished.” Essentially, an ROP tells you when you need to begin the restocking process for a product to keep a steady supply going.
Charting ROPs is a major game-changer for retail businesses. By calculating the lead time, average daily sales, and safety stock, inventory managers can draft a chart for when they would need to have inventory restocked. The lead time is the time the vendor takes to fulfill the order, while safety stock is the amount of extra stock the business carries as a safety net against surging demand or delayed supply.
ROP formula: (average daily sales x lead time) + safety stock
The resulting amount of inventory would be the threshold at which the business needs to begin restocking to keep a steady supply going. With the restocking schedule now set, there is a much lower likelihood of the business ending up out of stock due to forgotten restocking.
Make Use of Inventory Management Software
Gone are the days when an excel sheet could suffice for inventory management purposes. As is the case with nearly all business functions, technology today plays a major role in maximizing efficiency. Inventory Management Systems are software that are specifically designed for managing inventory. They keep track of the flow of inventory through the business, as well as having helpful functions like setting up reorder points and generating reports of the business’ inventory trends.
While the best inventory management software is quite expensive, there are a host of free options available in the market. Which software to choose is completely up to the entrepreneur and requires an evaluation of the business needs to make the best decision for the business.
Perform Regular Inspections
Inventory must be inspected regularly to ensure steady business operations. Daily inspections of the business’ inventory are a solid measure against issues like product theft and inventory damage. There is a plethora of issues that can occur while inventory is in holding. Issues like water leakage or other environmental hazards can destroy the inventory, so checking in daily to ensure that the goods are safe can save the business valuable time and money. Similarly, keeping a tally of the inventory at the end and the start of the business day and comparing it to the day’s sales can reveal any discrepancies that need to be addressed.
Use Barcode Technology
Barcode scanning is a highly efficient way to keep track of inventory. By making use of barcodes, inventory can be tracked and updated in real-time, without needing any physical recording. Barcodes are also immensely useful for in-store management, as employees can identify products by their barcodes for quick service.
Consider Implementing Stockless Purchasing
While not the right option for some business models, stockless purchasing can prove to be a great boon for others. Stockless purchasing essentially entails that the business arranges for the vendor to directly supply the product to the customer. By removing the need for the business to hold the inventory, one of the biggest costs for the business, i.e., the holding cost for inventory is removed from the equation. This is a rather niche model for most retail businesses, but if the business deals in selling bulky products such as electronics, it is far better to order the products and ship them directly to the customer than to maintain a warehouse yourself.
Focus on Supplier Relations
In a prior publication titled “Top Accounts Payable Trends to Look Forward To in 2023” experts at EA highlighted the growing need for better Supplier Relationship Management (SRM) in the accounts payable department. This need also holds true for the inventory management function, as they can establish reorder points and lead times, and make sure the business has the products needed when it needs them. By working closely with your suppliers, you can also negotiate better prices and terms.
Utilize Forecasting
Entrepreneurs can enlist the help of business analysts and inventory specialists to forecast future inventory-related developments and strategize accordingly, making use of forecasting methods such as trend analysis, seasonal analysis, and causal models. This can greatly reduce the risk of stockouts or overstocking, saving the business a lot of hassle.
Monitor Inventory Metrics
Effective inventory management requires regular monitoring of inventory metrics. Keeping track of metrics such as inventory turnover, days of supply, and holding costs is immensely beneficial when it comes to optimizing inventory, as it provides a clear map of the business’ processes and helps easily identify any bottlenecks in the inventory function that need to be addressed.
Hire an Inventory Management Specialist
As with all things, there is only so much that a non-specialist can contribute toward process optimization. The best way to achieve effective inventory management optimization is to hire a professional in the field. A professional inventory manager is an invaluable resource, as they can provide the business with great cost savings and better workflow. The wall that most small businesses run into, however, is that great inventory management specialists come at an equally high cost. While the service is well worth every penny, it just isn’t in the cards for many businesses in 2023.
Expertise Accelerated’s inventory management services strive to alleviate this issue. By making use of EA’s offshore inventory management professionals, even start-ups can reap the numerous benefits of having an inventory manager on board. Thanks to EA’s unique staff augmentation model, entrepreneurs can integrate offshore inventory management professionals from the global talent pool directly into their workforce, subverting the hiring process as well as operating under the sage advice of EA CEO Mr. Haroon Jafree, a decades-long veteran of the US CPG industry.
Conclusion
To conclude, inventory management is a priority area of optimization for businesses going into 2023, and entrepreneurs must be conscious of this fact and dedicate time and energy to ensuring that their inventory management strategy is stalwart and can be sustained in the approaching hostile business climate. By making use of these simple inventory management tips, entrepreneurs can prime their businesses to meet this challenge head-on, and come out on top!