Effective Inventory Management: 5 Best Practices

One of the biggest challenges many wholesale companies face as they grow is figuring out how to manage inventory as their needs change and their product portfolio grows. Fortunately, there are some proven best practices that will help to cure some of those inventory headaches.

5 best practices

One of the biggest challenges to effective inventory management has to do with the nature of the inventory management function as part of the overall business. Manufacturing, procurement and sales activities directly impact inventory, and yet these departments may not all be actively involved in inventory management decisions.

Inventory is also affected by forces outside the company – the larger economic environment, changing seasons and trends, and resulting shifts in demand. Some of these factors can be studied and predicted, and others are less easily managed. Inventory managers must cooperate more closely across departments: sales, customer service, manufacturing, IT, accounting, etc. Here are some best practices to help your business conduct more effective inventory management.

5 Best Practices for Effective Inventory Management

1. Categorize your inventory

Separating the wheat from the chaff, or in this case, separating the “stock” from the “stuff,” (distinguishing the most high value items from inventory that’s lower value) is one important step towards more effective inventory management.

ABC analysis is one of the most common methods for doing this, and many leading inventory management programs like SAP, Microsoft Dynamics and even QuickBooks support it. ABC analysis recognizes that not all items in your inventory are equally important. The goal of ABC analysis is to optimize use of warehouse space and to ensure that the most important items are always available. Less important items should take less space, and more space should be used on the items that are most in demand.

2. Look at different management models

There’s more than one way to manage your inventory. There’s no law that states every item your company offers has to be maintained in your warehouse, for instance. Vendor-managed inventory, where a supplier has access to your inventory data and uses this information to ensure you always have adequate inventory, might be a viable option for certain items (such as your C items). Other options include having a dedicated inventory manager if you don’t already have one, purchasing inventory software, or hiring an outside consultant or specialist.

3. Develop a plan

After studying different options and getting a handle on what’s already in your warehouse or stockroom, the next step is to develop a more effective plan. This requires a cross-functional effort; it’s not just an operational effort that happens in the warehouse. A successful inventory plan should also involve your marketing, catalog, ecommerce, and merchandising departments. If your goal is to liquidate the C items in the warehouse, you’ll need to work with sales, marketing and other departments to ensure that there is not a reason to maintain the items (such as a future promotion).

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