3 Ways Every Business Can Improve Inventory Management

Mar 21, 2024

Managing inventory is tricky business.

Naturally, no company wants to under-serve a market desperate for its product — but overly optimistic demand forecasting can just as easily leave racks of outdated supply collecting warehouse dust as a product’s momentum fades.

Considering each new product’s development and promotion cycle represents a considerable investment of resources, inventory management professionals are essential in directing companies to the minuscule zone between excess and insufficient product.

They do so through a combination of data analytics, experience and the understanding that most inventory challenges can be traced along a similar path:

  1. Human error either in counting, tracking, reporting or data entry produces an inaccurate picture of a company’s current inventory, making the statistical foundation from which inventory managers later base their demand forecasts flawed from the start.
  2. Inaccurate demand forecasting or failure to properly anticipate shifts in consumer demand follows as the faulty data points companies in the wrong direction, often straining supplier relationships and inflating the cost of a business’ logistical operations. Human error can bleed into forecasting too, as even the most accurate analytics can be misinterpreted.
  3. Overstocked (or understocked) inventory then fails to mirror consumer demand, leaving untouched racks of products sitting in storage or unimpressed customers waiting on backorder, impacting the company’s bottom line.

Of the many (many) tools, tips and tactics today’s logistics professionals use for mitigating inventory issues, the three below represent actions nearly every business can use now to dramatically improve the state of their inventory management:

1. Determine Your Minimum Inventory Level

If every growing business knew how much inventory it needed each year we’d be living in a state of logistical harmony — instead, we have demand forecasting and minimum stock levels to get us in the ballpark.

Demand forecasting takes your company’s historical sales as a baseline for the amount of stock needed to keep customers happy while limiting wasteful spending on overstock. Of course, anyone who’s attempted to prep Easter dinner for an unknown number of guests will quickly recognize how past turnout can sometimes paint an incomplete picture; past data is a helpful starting point, but not the final word.

That’s because not every trend or disruption has historical precedent. Consider how different your daily commute becomes in sudden inclement weather, or following a freeway accident. The inevitability of unexpected circumstances lead many experts to establish and implement a product’s “safety stock” (sometimes termed “reserve stock”) before refining their forecasting any further.

Remember our dinner analogy — it’s easier to keep people coming back while erring on the side of too many leftover mashed potatoes rather than too few. The philosophy at work here is it’s better to spend money stocking excess inventory at what could be considered the demand “floor” than to lose money leaving customers empty-handed.

2. Use WMS to Track Inventory in Real Time

It’s tough to maintain appropriate minimum stock levels without insight into your current inventory. Understanding exactly how much product you have on-hand (and how slowly or quickly it moves) paves the way for more efficient inventory processes and more accurate forecasting — two things we like. It’s this added visibility that makes a warehouse management system a modern logistics essential.

A good WMS can be expensive and complicated to fully integrate, particularly for businesses already in motion. Fortunately, upfront investment in new tech isn’t the only way to benefit from a WMS; A trusted 3PL provider will already have its WMS and TMS up and running, making the tech’s many advantages available to shippers who aim to quickly resolve their inventory challenges without the pain of an in-house installation.

Whether an in-house investment or accessed through an asset-based third party, a WMS connects a business to more efficient inventory tracking, logging, forecasting, optimizing and automated processes, and is thus a core component of any long term supply chain infrastructure.

3. Conduct Regular Inventory Audits

Does your warehouse inventory match what you have on record? If minimum stock levels are meant to ensure a baseline of product availability and a WMS is in place to grant insight into those inventory levels, there’s a lot riding on the data in the WMS being correct.

Inventory audits compare real-world product counts to a business’ own digital inventory records to confirm no surpluses or deficits have emerged (or to alert companies when they have).

There are two main approaches to conducting an inventory audit: physical counts and cycle counts. Physical counts are the more comprehensive of the two, as these involve checking items wall-to-wall in a time-consuming but extremely thorough manner. Conversely, cycle counts check only a small group of items but do so regularly to spot-check a company’s record-keeping accuracy.

Consider the following before you start either form of inventory auditing:

  • Timing. Choose an off-peak time to conduct thorough inventory counts.
  • Organization. Make sure the product you plan to inventory is easily accessible.
  • Documentation. Have all paperwork ready for a proper audit, including inventory records, invoices and shipping and receiving reports.
  • Preparation. Make sure everyone is properly trained and equipped to carry out an inventory audit (consider pairing up for more accurate counts).

Don’t forget — a 3PL is in your corner when it comes to inventory management. Leveraging a partnership with the right third-party servicer can greatly simplify the road to full WMS integration and provide regular comprehensive inventory audits to ensure accurate inventory levels.

Contact First Call Logistics today for more on our inventory management services, as well as our network of in-house warehouses, available to shippers nationwide.

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