Inventory is crucial to any organization that relies on supplies to deliver products and services to customers. It plays a role in the company’s cash flow, profitability, and customer satisfaction levels. Order too much inventory and you may waste money on products you don’t need. Order too little inventory, and you may not have the supplies you require to fulfill customer orders.

However, with the right inventory management optimization strategies, you will have the inventory you need when you need it and never have to worry about having too much.

Inventory Management Optimization Strategies

Use Demand Forecasting

Demand forecasting uses historical data to determine when products will be in demand. Companies use the data to predict when they will need more supplies, and when they should hold off on ordering. Businesses typically use forecasting tools for this purpose.

The strategy does more than help leaders make better decisions and ensure a seamless supply chain process. It also helps them determine when to run sales, hire more employees, or acquire more storage space.

Use ABC Analysis

An ABC analysis assigns value to your inventory items. ‘A items’ are the most valuable or important, followed by B and C. Once values are assigned, you can devise a system based on which items should be prioritized during inventory ordering.

Consider Just-In-Time Manufacturing

Just-in-Time (JIT) manufacturing takes demand forecasting to the next level. Ordering and manufacturing only take place when demand is there. Products are made and shipped in line with customer orders.

Companies that follow this strategy must ensure they can access the products they require through the supply chain. However, with the right planning, JIT manufacturing offers optimal efficiency in inventory management.

Determine Safety Stock Inventory

Safety stock inventory may be the perfect way for companies to carry out a JIT manufacturing strategy. Safety stock, or buffer stock is the product you keep on hand to ensure you are prepared for emergencies or supply chain failures.

Every company should have safety stock available, but determining how much you need can be tricky. You must consider factors like maximum and average daily usage and lead time. Your calculations will ensure you don’t over-order or under-order.

Integrate Reorder Point Formula

An organization’s reorder point formula helps them determine when they need to reorder goods. It should optimize cash flow and prevent issues like backorders and lack of order fulfillment. Companies must also factor in shipping times and potential delays.

Organizations may use the following formula to determine the reorder point (ROP):

ROP=Demand during lead time + safety stock

Although the formula is simple, companies must stay on top of their inventory to ensure timely reorders. Consider using software to access this information as needed.

Conduct Inventory Audits

Inventory audits do more than tell companies how much inventory they have on hand. They also provide insight into the following:

• Holding Costs: Warehouse staffing and storage expenses.
• Shrinkage: Goods that are lost due to theft, damage, production errors, and clerical errors that can affect inventory counts

Audits are time-consuming, but the right technology can accelerate the process.

Keep Track of SKUs

SKUs are unique codes used to track inventory items. Inventory software can assist with SKU management including tracking and updating to ensure you don’t oversell or run out of stock. Depending on the software program, it may provide you with the capabilities to:

• Use SKUs to gain insight into real-time inventory levels
• Set reorder points for each SKU
• Bundle different SKUs for promotional purposes
• Merge products to avoid duplicates
• Have items assembled so they are ready to be shipped

Distribute Inventory Across Warehouse Locations

Larger companies should consider distributing their inventory across their warehouses based on demand. For example, if one product is popular in a specific region, the warehouse in that location should be well stocked on that item. This strategy speeds up shipping and reduces shipping costs.

Use Inventory Management Technology

Keeping track of inventory isn’t easy. The right technology will provide a central location where you can view inventory information, sync SKUs, review data, and determine reorder points. There are various software programs available ensuring you will find one that meets your budget and organizational needs.

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