What is Inventory Optimization?

November 7, 2023

No secret that all businesses are looking to reduce costs while meeting and exceeding customer expectations. Inventory optimization is one of the ways that helps optimize the operational expenses, ensuring that right products are available in the right quantities at the right time, at the same time minimizing excess stock and associated costs. With that businesses can enhance operational efficiency, reduce carrying costs while not compromising on customer satisfaction.

Inventory optimization can be seen as a process of analyzing and adjusting inventory levels to maintain balance between demand and supply, keeping the right amount of inventory to satisfy customer demand and not spending money on storing the excess inventory.

Inventory Optimization

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.

With inventory optimization software, small businesses can streamline their inventory management processes by effectively forecasting the demand and optimizing the inventory levels with the help of advanced algorithms and analytics.

Ready to optimize your inventory? Visit our website and start implementing these strategies today!