What is Inventory Optimization?
November 7, 2023
It is not a secret that all businesses strive to cut costs while servicing customer needs and expectations. Inventory optimization is one such tool that helps optimize the total expenses in operations while ensuring that the right products are available in the right quantities at the right time. The key to efficiency and cost savings lies in minimizing excess stock from the equation while enhancing the availability of products that the customer demands.
Inventory optimization is all about analyzing inventory and balancing it between demand and supply, having the right inventory to satisfy customer’s demand. We need to have that inventory on hand and often we spend a lot of money bringing stock in and storing it before we can sell it.
How to optimize inventory levels? Here are a few key components to it:
1. Forecast the demand
Leverage historical storage and sales data, market trends, and predictive analytics, and use it to anticipate demand fluctuations and adjust inventory accordingly - reduce inventory or increase it where needed . Inventory optimization software can be a great help processing inventory records to know exactly how much of supply is needed for your business.
2. Practice Safety Stock Management
Mitigate the everyday risks of stockouts and delays in supply chains by keeping an appropriate level of safety stock. Inventory optimization helps understand your optimal safety stock levels and make sure that capital is not tied up and carrying costs are under control.
3. Standardize processes
Develop standard procedures for all the steps of inventory management. Make sure to cover at least the basic ones:
- Ordering - suppliers, frequency, ordering process
- Checking in - scanning, inventory management system
- Storage - placement, conditions
- Checking out - process of checking out of the item or a group of items
- Audit - process of inventory audit, its cadence and major goals
4. Monitor suppliers performance
Maintain a reliable supply chain and keep high quality and timeline of goods and services. For that, what are the key metrics for you to measure supplier performance? It can be on time delivery, quality and cost of goods, responsiveness to inquiries etc., set the expectations. Regularly review the suppliers performance and work with them sharing suggestions for improvements and asking for the feedback from their side.
Small businesses can now use inventory optimisation software to automate and streamline their inventory management process, delivering better predictions of inventory levels and a more efficient ordering process.
Ready to optimize your inventory? Visit our website and start implementing these strategies today!
