Inventory Management Techniques
There are many different types of inventory management techniques available to best serve the type of industry and product a business produces or resells. Although unique in approach, each can manifest its full potential when applied with inventory software like SOS Inventory, cloud-based software designed with the appropriate custom features to suit each of the various inventory management techniques.
Various Techniques for Inventory Control
- Economic Order Quantity – The goal of calculating the economic order quantity is to order the least amount of product possible to meet demand. This method frees up cash flow but is best suited for businesses with steady demand. Those businesses that face seasonal highs and lows often don’t opt for this approach.
- Minimum Order Quantity – The smallest quantity of product the vendor will sell is the minimum order quantity. The purchaser will normally pay less per unit for larger volumes acquired.
- ABC Inventory Analysis – This inventory management technique entails sorting products into categories, i.e. A, B, C, so that products are arranged by profitability.
- Just in Time (JIT) – When products are created as orders come in, they are made only when a sales order exists to satisfy, avoiding accumulation of stock. Often, products that use this technique require some level of customization that must be completed when options are selected by the customer.
- Consignment – Sellers who carry consignment inventory do not own the products they sell, rather when the sale takes place, they pay the vendor and earn a profit. If these businesses have other inventory on hand, they must keep it separate from items on consignment.
- Backorder – If a vendor sells an item he doesn’t have on hand, he provides a delivery date to the customer and fulfills that order when the item arrives from the vendor.
- Safety Stock – When additional stock is kept on hand to ensure increases in demand can be met, the business keeps safety stock on hand based on the average number of days to deliver and how much product is normally consumed within that time frame.
- FIFO/LIFO – First in first out and Last In first out refer to the order in which materials are used in production. Any industry that utilizes products with expiration dates must work with the first in first out method to ensure fresh product is delivered to customers. If the newest products must be sold first, the opposite method is applied.
- Reorder Point Formula – This type of inventory control technique entails calculating the inventory quantity that triggers a purchase order. This amount represents the least amount the business can have on hand to have enough while awaiting a new order to arrive from the vendor.
- Batch Tracking – When similar items are grouped together in lots to monitor expiration dates, the business can quickly locate products forward or backward in the manufacturing workflow to recall any problematic products.
- Perpetual Inventory Management – When inventory counts are updated from every touchpoint in production and the data is shared via a central database, you have a perpetual inventory system.
- Drop Shipping – If a business passes fulfillment and delivery to a third party, it is using a drop shipping system to complete processing of its sales orders and receipt of returns.
- Lean Manufacturing – Using different techniques of inventory management to continually reduce waste and increase profitability is an approach that requires in-depth analysis of workflow processes, waste, bottlenecks, communication with floor managers and researching alternative vendors.
- Six Sigma – This technique is an approach that promotes the use of tools to increase profits and minimize excessive inventory quantities.
- Lean Six Sigma – A more focused version of six sigma, this approach narrows in on business workflows.
- Demand Forecasting – When businesses use historical data to predict future demand based on seasonal patterns and past sales, they can make decisions about future production based on those forecasts.
- Cross-Docking – When shipments move from one vehicle to another without stopping at a storage facility, they are moved as needed to satisfy demand as sales come in.
- Bulk Shipping – When large volumes of product are ship to reduce the cost per product, the business can lower shipping costs per item and increase profitability.
No matter your product or industry, SOS Inventory can help you effectively apply the appropriate inventory management techniques to optimize production workflows, increase profitability, reduce labor costs, and improve transparency in financial records. Take your business to the next level with the premier inventory software tool designed for businesses aimed to grow and prosper.