It becomes incredibly easy to lose track of your stock as you scale your supply chain, especially if you’re still using manual methods of inventory control. You count inventory as it arrives…using a pen and paper, or by physically typing numbers into a spreadsheet yourself…does that describe your process?
If it does, you’re opening yourself up to a world of challenges: unnecessarily high storage costs, stock spoilage, stock surpluses, dead stock, wasted labor, reduced sales, order fulfillment failures, unsatisfied customers and supply chain disruptions. Whether you’re an e-commerce retailer, omni-channel manufacturer or run a string of warehouses, you need proper inventory control techniques to track your inventory lifecycles successfully.
INVENTORY CONTROL TECHNIQUES
As every supply chain is different, it is often advisable to mix and match the techniques used to manage your inventory to find ones that work best for your business.
ECONOMIC ORDER QUANTITY (EOQ)
EOQ is used to minimize costs by maximizing the number of items ordered each time you buy, that way you’re effectively reducing the frequency at which you’re buying. Implementing this technique requires finding the ideal order quantity to purchase at for each product, and knowing exactly when to purchase it. You should also know the relevant ordering costs, carrying cost and level of demand before replenishing.
One of the most well-known and commonly-used techniques, ABC analysis involves sorting your products into 3 categories:
- Category A: These are your most valuable products. They tend to sell for the highest price, contribute the greatest amount to your bottom line and are the most difficult to manufacture. Consequently, these items require most of your attention.
- Category B: This category is composed of your mid-value, medium-priced products.
- Category C: These items have a lower price tag resulting in many smaller transactions that don’t have a large effect on overall profit levels. Management of these items can be more hands-off, but they do tend to take up most of the storage space in your warehouse.
ABC analysis encourages better allocation of resources, time management and more strategic pricing by helping you prioritize products. One downside of this technique, however, is that it may ignore newly trending products.
JIT replenishes inventory on an as-needed basis according to the specific production schedules of each item. While JIT can prevent many of the issues arising from stock surpluses and dead stock, and also reduce holding costs, this is one of the riskier inventory control techniques. It is very much based on unpredictable customer behavior so businesses practicing this technique should be agile enough to handle short production cycles and be knowledgeable on proper production planning. Otherwise, they may run into problems with inconsistent order fulfillment.
By analyzing sales trends and the likelihood of disruptive events occurring within your supply chain, a demand forecast can predict how much product your customers are likely to want over the course of a given time period. Demand forecasts can help prevent obsolescence or spoilage caused by out-of-season stock or shifts in consumer behaviors.
BACKORDERING & DROPSHIPPING
In both backordering and dropshipping, you don’t actually keep any stock on hand and you never actually see many of the items you’re moving. Whenever a customer places an order with you, you then place an order with your supplier, wholesaler or manufacturer who carries the product, and they are the ones who ship it to your customer. This is known as dropshipping. In backordering, you are able to take orders and receive payments for out-of-stock products. Both methods are great for reducing holding costs but there is a risk of customer dissatisfaction if orders aren’t received promptly or correctly.
- First In First Out (FIFO) & Last In First Out (LIFO): In FIFO, the first products you receive are also the first ones off your shelves. This is useful for seasonal products or electronics that can become obsolete. LIFO, on the other hand, is used to sell the most recently received items first and can be useful for companies moving food, medicine and other perishable goods.
- Batch Tracking: This is used to monitor stock with a similar set of traits. It allows you to track defective stock back to the original batch, initiate quick recalls, and easily find out expiration dates of perishable items.
- Cross-Docking: Product storage can be minimized by unloading all incoming trucks directly onto outgoing trucks.
- Bundling: Used to move aging inventory more quickly and to encourage greater customer satisfaction, bundling is often done in the form of “free gifts” or extra item add-ons being included in customer orders at a reduced price.
- Bulk Shipping: This is good for moving high-demand products at a lower cost, though storage costs may be higher and customer demand fluctuations can be problematic.
INVENTORY CONTROL RULES OF THUMB
Regardless of the techniques chosen, all of your teams — from purchasing to merchandising and warehousing — should be held accountable for making your inventory a top priority in your supply chain. Here are a few rules of thumb to follow to guarantee effective inventory control.
Inventory Audits: Regular stock audits will keep your stock levels accurate and show you where you can (or should) automate time-consuming or error-prone tasks.
Cycle Counting: Do cycle counts every few months to compare what you have on hand to the amount of inventory you’ll need. Randomly spot check these counts throughout the year. When counting, count one inventory category at a time and count them based on seasonality.
Tracking KPIs: Tracking the right inventory KPIs to identify pain points in your operation. Some of the most important KPIs to track include inventory turnover, inventory-to-sales ratio, inventory days of supply, and inventory velocity.
Safety Stock: Keep extra stock on hand in case of unexpected demand changes, forecasting errors, or longer production lead times.
INVENTORY CONTROL WITH DATASCOPE WMS
If you’re looking for inventory management software, look no further. A quality warehouse management system (WMS) like DATASCOPE WMS can handle many of these inventory management techniques directly within our software. Our inbound and outbound inventory control modules support demand forecasting, cycle counting, batch tracking, automated ordering and purchasing and much more.
Our visual, cloud-based system keeps you competitive by offering complete, real-time visibility into your inventory levels in every location. Every member of your team can easily access, view and share inventory data at any time and build fully-customized reports based on the relevant metrics you’re tracking across all sales channels. That way, you can keep everyone updated on product movement, suppliers updated on sales trends, and stay properly stocked at all times.
To try our WMS yourself, schedule a demo today!