Thousands of dollars can be tied up in your warehouse, and timely delivery to customers is dependent on how inventory is managed. In order to retain a competitive edge, your business needs to cut costs and satisfy consumers.
Knowing exactly what quantities to maintain is tricky in the rapidly changing trends of the American marketplace. Here are some guidelines to effective stock control.
Safety Stock Levels
Safety stock, also called buffer stock, refers to the amount of inventory kept on hand to ensure that anticipated orders are covered. This reduces the chances that you’ll be caught short-handed. You must keep enough product ready to ship, and enough boxes and packaging to get it out the door, along with adequate raw materials to replenish your stock to safety levels.
It’s crucial to be as accurate as possible, since failure to meet demand could cost you customers and your competitive edge, while excess inventory may tie up needed cash and warehouse space. Determining adequate safety stock for each product will depend on order history, variability over time, and the lead time required for replacement.
There are multiple strategies for controlling your stock. Each is intended as a system for identifying what, how much, and when to order. This may require a combination of methods depending on the type and sources for your products. Some inventory techniques include:
Minimum Safety Stock: Once you establish a minimum to keep on hand, you re-order as soon as quantities drop to that level.
JIT (Just in Time): If you have short lead times and confidence in your supply chain, you order replacement goods as soon as stock is used.
EOQ (Economic Order Quantity): This is a standard formula that determines optimal economic balance, rather than actual demand, as the trigger for replacing stock.
Fixed Quantity: If you know what demand will be, such as during the holidays or seasonally, you re-order fixed quantities of goods at the right point in time.
Batch Control: Production and re-ordering take place in batches of sufficient quantity to cover needs until the next batch.
First In, First Out: This is generally applied to perishable goods such as foodstuffs. Ordering is done based on expiry date to ensure fresh product is ready to replace outdated product.
In today’s companies, inventory is usually managed through computer software. This is a database system for tracking stock that also runs regular or on-demand reports using various calculations, and may integrate with purchasing or CRM systems.
The software can generate alerts or automate re-ordering when a certain SKU falls below safety stock levels. It can include additional information such as current prices, recommended vendors, and anticipated lead times.
However, if the data depends on manually entered numbers, errors can occur which gives your competitors a competitive edge. Most modern systems will also use technologies such as RFID chips or bar code scanners to ensure shipping and receiving history is accurate.
This allows you to utilize a third-party company to provide your inventory and distribution needs. You produce or order the quantities to put into inventory, and the sourcing provider takes care of the rest.
They can also manage raw materials. Product sourcing is a common logistics solution for businesses all over the world. In the state of Texas, they’ve saved over $163 million by product sourcing on government contracts.
The benefits of outsourcing include access to raw materials without concerns about local vendors. You can count on the same services as your business grows. Established product sourcing companies already have the manpower and skills for optimal performance, which means you’re saving on labor and shipping costs. It’s important for your future that you see inventory management not as a service, but as a value system. The right solution will give your company a competitive edge in efficiency and savings.