What Is Inventory Management? Benefits, Challenges, and Methods

Motorola introduced the Six Sigma methodology in the 1980s to bring down the defects in its manufacturing process. It emphasizes a data-driven approach for continuous business transformation. Six means six standard deviations (a statistical benchmark), and the sigma symbol represents a standard deviation. The Package Enabled Reengineering methodology focuses on the original functionality of software packages as a framework for rethinking the design. It requires an analysis of challenges within the current process, management, people, and design to shape new systems.

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FIFO helps you do that by keeping track of when you received each batch of items and making sure you sell them in the same order. FIFO is also useful for accounting purposes, because it gives you a more accurate online store inventory picture of your cost of goods sold and your profit margin. By using FIFO, you can match your sales revenue with the actual cost of the items you sold, rather than the cost of the items you bought most recently.

What are common inventory management techniques?

The idea behind Just-in-Time inventory management is to reduce or even eliminate inventory. These systems work on visual pull systems, where the supplier replenishes the stock as it is used. While JIT works well in a production facility where usage is known and constant, it may not be practical where demand is unpredictable. Demand planners rely on precise information to manage inventory efficiently.

Stage 2 (optional): Production

Barcodes are assigned to all like products regardless of where they are sold. However, retailers may print product labels containing both a barcode and their SKU number. Because no two products have the same SKU https://www.bookstime.com/ number, SKUs may be the only systematic way for a retailer to identify a specific item or customer order. An SKU or stock keeping unit is an alphanumeric code retailers use to identify and track a product.

• They use a single platform to track and manage inventory levels across many warehouses and locations.
• By using SKU numbers to track these attributes, you can better understand your customers’ preferences and adjust your inventory accordingly.
• This technique involves counting a small portion of your inventory on a regular basis.
• Proactive solutions such as Netstock’s predictive demand forecasts play a crucial role in inventory management.
• The benefit is that the consignee doesn’t actually pay for the goods until they’re sold and the consignor is responsible for shipping costs.
• However, you might prefer to create purchase orders manually, especially if your organization is very small.

The other big downside is the risk of an unreliable supplier – if they mess up the order, it’s your name on the box and your unhappy customer that you have to pacify. Ordering in bulk requires a large upfront investment to order in large quantities (and reap the savings), and also to store it all somewhere. Combine good inventory visibility with some inventory management best practices, and you have a recipe for success. This method offers comprehensive insights into inventory, streamlines processes, and can improve overall efficiency. It’s essential for accurate inventory data, allowing for timely ordering and reduction of excess stock. It’s crucial for traceability in case of recalls and managing stock with expiration dates, maintaining the integrity of the supply chain.

These inventory metrics are essential for keeping stock levels optimised. To achieve this, you need to invest in a robust inventory management system. Dealing with different order quantities, replenishment cycle times, safety stock, forecasts, and seasonality be complicated.

Retail and Manufacturing Inventory Management

The goal of stock control is to ensure the right quantities of goods are stored in the right location to facilitate efficient order fulfilment. When an optimised and holistic inventory management plan is successfully executed, supply chain efficiency increases – and your inventory carrying costs plummet. It is the role of your supply chain management team to ensure an efficient inventory system is in place.

You can read our reviews of the best POS systems to find the right fit for your business. With point-of-sale (POS) inventory management, business owners can keep track of their inventory across multiple sales locations, all from a centralized system. A POS system works hand in hand with inventory management, as it helps you keep an accurate count of your inventory with every sale.

Types of Inventory Records

Using SKU data, you can monitor product statuses and calculate reorder points—the date or time when you need to order replacement stock. This is typically when your inventory level drops to a predetermined number. By tracking how quickly each SKU sells over a given period, you can predict when you should place another order with your supplier.