Good Inventory Management: The Science Behind It

One of the most relevant aspects of SME management is inventory control, understood as the set of processes related to the supply, storage, and accessibility of a business’s goods to ensure their availability while spending the least amount of money possible.

We are talking about a concept covering different aspects, such as the registration of quantities, price, location of products, rotation, and management of the information derived from them. Hence the importance of inventory control in a company and the need to implement mechanisms and strategies to improve it. 

Leading strategies to improve Inventory control

Some general strategies of great utility for all types of SMEs and companies are the following:

1. Establish the optimal inventory level

It is essential to implement and optimize all inventory control mechanisms. The concept refers to the point where the amount of stock does not show excesses that increase storage costs, but it neither presents shortcomings that prevent responding to customer demand. The idea is to determine it based on sales history and customer demand data.

By defining this indicator, you can establish good strategies to improve inventory control because you know the ideal quantities of each product are in stock, and you can prioritize their management.

Estimates show that 80% of the demand comes from 20% of your products. That is why you must identify the products with the highest turnover and those that do not usually attract your customers’ attention but are necessary to maintain variety.

2. Track inventory accurately

Once you have determined the optimal stock level, you must always keep it that way. To help you in this complex task, you can implement inventory management software, a tool in which you have all the information on the merchandise that leaves or enters the warehouse and is up to date in real time.

• • How to improve inventory control with this information?

They identify shortages of stocks and excess merchandise to request purchase orders on time and design sales strategies to exit products with low turnover or close to their expiration date.

3. Do a physical inventory count periodically

It is one of the best strategies to improve inventory control. Although you have the information on all the stocks in the system, items may go out without being counted (sales not registered, carelessness of the operator, theft, etc.).

 It is necessary to periodically carry out a physical count to verify that the actual stocks match those registered, even random.

4. Lean on electronic invoicing software

Management software is the best inventory control mechanism, but integrating it with an electronic billing system can improve results. 

Every time you make a sale and generate the respective DTE, the inventory system automatically updates the records, discounting the sold merchandise from the stock.

It’s about simplifying processes. Invoicing software is of great help for stock control even when it is not aligned with the inventory system or even if you do not have an inventory system.

Why? The billing software generates a sales and purchases report to see which products you have sold and purchased during a specific time. When comparing it with your initial stock record, you should know, on paper, which items you have in stock, which ones you don’t, and which ones have the highest turnover.

5. Develop a comprehensive and comprehensive logistics plan

Improvising inventory management is like managing money and expenses without any control. After all, it is a collection of assets that will become liquid in the short term, which is why they have terrific weight and financial value.

For this reason, from the moment you define the business plan, you need to establish a logistics and strategic plan that encompasses all actions related to controlling this area.

If your company started activities years ago and you have not yet taken this step, don’t worry! In that case, analyze the characteristics of your operations very well, detect the classic problems you experience with inventory, and then develop a broad strategy focused on optimization.

In addition, establishing the optimal level of stock and specifying the technologies and resources that you will use to monitor your operations and inventory logistics plan requires defining the following key points:

Specific tasks

It is essential to determine very well what are the operational tasks that will be part of inventory control: periodic reviews, audits, goods entry, stock update, and management of applied technologies can be some of these functions.

Define them clearly and specify the contexts in which they should occur and their frequency.

Task managers

Once you have defined the tasks, it is time to assign people responsible for each one.

Evaluate the profile of your human talent very well so that you can give each employee a role adapted to their characteristics and abilities.

Being aware of the great value of inventory, many entrepreneurs tend to take on all the tasks of managing it themselves, which is a big mistake.

For the management to be intensive and allow constant monitoring, you need to delegate functions and support your team.

Hierarchies

The inventory control should have a small organization that defines the employees’ hierarchies in this area.

For management to be effective, you must establish a leader or supervisor with whom you work hand in hand and constantly review the effectiveness of the management model.

Warehouse sorting systems

While digitizing your inventory is very important, this does not mean that you can neglect stock on the physical plane.

Sorting and classifying them is also essential to avoid losses and streamline the day today.

Operations. Sort and classify them according to some of the inventory control techniques.

Given this reality, it is convenient to define a merchandise organization system, which can be:

• • ABC method: ordering the warehouse so that the products with the highest value are the most accessible and visible to guarantee greater control and speed of management. Category A is those merchandise that generally represents around 20% of the stock units but whose estimated economic value is 80% of the inventory. Meanwhile, category B products are established in medium-access areas and type C in the most remote or complex management parts.
  • FIFO method: first in, must be somewhat out, that is, be sold. This method works best for stores of perishable products and technological devices that can become obsolete quickly. The objective is that the new goods are placed in the most privileged areas regarding their access to the warehouse. Also, the stocks of stores and shops are exhibited in the most visible spaces to encourage their rapid rotation.

6. Carries out management reports

To reinforce and consolidate inventory control, develop periodic management reports that allow you to detect points of improvement, problems, and progress compared to previous months or years.

Losses that have occurred each time and discrepancies between physical and digital inventory are excellent metrics you can analyze and document.

The collaborators’ performance involved with inventory management, the real impact of the technologies implemented, and the assertiveness of the logistics plan are other aspects to consider in the management reports.