Inventory management techniques use formulas and analysis to plan stock. Others rely on procedures. All methods aim to improve accuracy. Companies use techniques depending on its needs and stock.
The guide to inventory management techniques can help you choose the best technique for your business. Here’s a summary of them.
- ABC Analysis: This method identifies the most and least popular stock types.
- Batch tracking: This method groups similar items to track expiration dates and trace defective items.
- Bulk Shipments: This method considers unpacked materials that suppliers load directly onto ships or trucks. It involves buying, storing, and shipping inventory in bulk.
- Consignment: When practicing consignment inventory management, your business won’t pay its supplier until a product is sold. That supplier also retains ownership of the inventory until your company sells it.
- Cross-Docking: Using this method, you’ll unload items directly from a supplier truck to a delivery truck. Warehousing is eliminated.
- Demand Forecasting: This form of predictive analytics predicts customer demand.
- Dropshipping: Dropshipping is when the supplier ships items directly from its warehouse to the customer.
- Economic Order Quantity (EOQ):This formula shows exactly how much inventory a company should order to reduce holding and other costs.
- FIFO and LIFO:First in, first out (FIFO) means you move the oldest stock first. Last in, first out (LIFO) considers that prices always rise, so the most recently purchased inventory is the most expensive and thus sold first.
- Just-In-Time Inventory (JIT):Companies use this method to maintain the lowest stock levels before refilling.
- Lean manufacturing:This methodology focuses on removing waste or any item that does not provide value to the customer from the manufacturing system.
- Materials Requirements Planning (MRP):This system handles planning, scheduling, and inventory control for manufacturing.
- Minimum order quantity:A company that relies on minimum order quantities will order minimum inventory amounts from wholesalers to keep costs low.
- Reorder Point Formula:Businesses use this formula to find the minimum amount of stock before reordering, then manage their inventory accordingly.
- Perpetual inventory management:This technique records stock sales and usage in real time. Read “The Definitive Guide to Perpetual Inventory” to learn more about this practice.
- Safety stock:An inventory management ethos that prioritizes safety stock will ensure there’s always extra stock set aside in case the company can’t replenish those items.
- Six Sigma:This is a data-based method for removing waste from businesses as it relates to inventory.
- Lean Six Sigma:It combines lean management and Six Sigma practices to eliminate waste and increase efficiency.