October 21, 2021

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Understanding Inventory Management Techniques

Inventory Management Techniques

Inventory Management Techniques

Inventory Management Techniques

Managing inventory may use mathematics and research to develop a stock strategy. Some depend on standard operating procedures. Everything tries to improve accuracy. The methods a business employs are based on its current requirements and available resources.

The right inventory management methods for any size company may help regulate your inventory. These are a few that you may like:

Just-in-time (JIT) methodology

Ordered goods are sent to consumers when they place an order, and depending on customers’ ordering habits. Using this technique, we will look at how purchasing habits, seasonal demands, and location-based variables describe what people really want.

With JIT, customers may buy anything they want without having to maintain huge amounts of goods on hand. Distribution difficulties with suppliers may lead to out-of-stock concerns.

Materials requirement planning (MRP)

Manufacturers must have reliable sales data in order to prepare for inventory requirements and communicate them with materials suppliers on time. An example is that if a ski manufacturer used an MRP inventory system, they would have a sufficient supply of such materials as plastic, fibreglass, wood, and aluminium on hand in anticipation of order forecasts.

When a manufacturer cannot properly predict sales and prepare for inventory purchases, it is unable to satisfy customer requests.

Inventory Management Techniques

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Perpetual Inventory System

This term, as the name implies, describes the technique of inventory accounting that is centred on tracking inventory “perpetually” throughout the supply chain. The continuous tracking method in this instance requires warehouse managers to stay on top of inventory balances at all times and then update the stock automatically when an item is received or sold to every point of sale.

Purchases and returns are recorded automatically in the inventory count as well in the perpetual inventory system.

Inventory tracking systems that employ barcode scanners, RFID scanners, and purchase, order, and return management software integrated with POS systems, CRMs, Marketplaces like Amazon FBA, utilise real-time inventory monitoring techniques like purchase, order, and return management software and POS systems that use barcode scanners, RFID scanners, and purchase, order, and return management software integrated with CRMs.

FIFO & LIFO

FIFO or LIFO are the inventory management and profit calculation techniques used by businesses. Profitability has an effect on a business’s income taxes.

The abbreviation FIFO stands for First-In-First-Out. It is a system of inventory accounting in which the oldest stock, or that which entered the warehouse first, is recorded as sold first. FIFO is one of the most often utilised techniques for inventory valuation.

The abbreviation LIFO stands for Last-In-First-Out. It is a technique of inventory accounting in which the most recently manufactured or bought items are reported as sold first.

Minimum order quantity (MOQ)

When determining the lowest amount of goods a supplier is willing to sell, use the minimum order quantity (MOQ) technique.

Suppliers don’t sell to businesses who can’t afford the minimum. By allowing suppliers to rapidly get rid of their goods while getting rid of bargain hunters, this approach helps both parties.

Economic Order Quantity (EOQ)

This model is utilised in inventory management, with each batch order used to lower the overall inventory costs by adding a certain number of units to the inventory. The continuous demand assumption is included as well. Holding and setup expenses are included in the model’s cost of inventory.

The EOQ model works to guarantee that inventory quantities are ordered at the optimal rate, which avoids having surplus inventory and the need to place further orders. It presupposes that inventory setup costs and inventory holding costs have to be paid, and that the cost of holding and setup are equal; thus, the lower the holding and setup costs, the lower the overall inventory costs.

ABC Analysis

Classifying inventory by categorising the inventory into three classes, one for each of the inventory’s worth and cost, is known as an ABC analysis technique. Products that are categorised as Category A have a high value and low quantity, goods that are categorised as Category B have a moderate value and moderate quantity, and goods that are categorised as Category C have a low value and large quantity.

An inventory management system may handle each category individually. It is critical to know which products are top sellers so that you can always have enough of inventory on hand.

For example, if higher-priced category A goods are slower to sell, but don’t have to be stockpiled in huge numbers, this is referred to as the need for variation.” In ABC analysis, higher-value products are more controllable, but they need a significant amount of resources to monitor inventory levels constantly.

Bulk Shipments

This system operates on the premise that bulk purchases are more cost-effective. It works well for companies that are certain their goods will sell, but it may provide difficulties when demand changes.

Backordering- When a client makes an order for goods that is not yet available, it is referred to as a backorder. To learn more about inventory management and how backordering affects it, see this post.

Safety Stock methodology

A safety stock strategy is one in which a company puts aside goods in the event of an emergency. Additionally, the safety stock method signals when it is necessary to restock goods prior to depleting the safety stock. Businesses should include safety stock into their warehouse management plan in the event that their supply chain is interrupted.

Inventory Management Techniques

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