Having inventory system is well worth your extra time and money and is only powerful as the way you use it. Heres helpful techniques in managing inventory that you can work with to make sure you’re utilizing the proper techniques and features to get the most in your business.
Follow this helpful techniques in managing your inventory using effective inventory system.
Safety stock inventory.
Safety stock in inventory management is extra inventory being ordered beyond expected demand. This technique is used to prevent stock outs typically caused by incorrect forecasting or unforeseen changes in customer demand. Safety Stocks helps you to prevent stock outs caused by incorrect forecasting or unforeseen changes in your customer demand.
FIFO and LIFO
LIFO and FIFO in inventory system are methods to determine the cost of inventory. FIFO, or First in, First out, assumes the older inventory is sold first. FIFO is a great way to keep inventory fresh.LIFO, or Last-in, First-out, assumes the newer inventory is typically sold first. LIFO helps prevent inventory from going bad.
Reorder point formula.
The basic formula for the reorder point is to multiply the average daily usage rate for an inventory item by the lead time in days to replenish it. This helps you monitor all re-order product that will be needed to order soon, which also greatly help you reduce the risk of item that will stock out.
This method helps you track the expiration of inventory or trace defective items back to their original batch. Batches will enable you to
- Track expiry dates
- Analyze return rates for certain batches
- Answer customer questions about differences between products
- Make more accurate reports on revenue, profit margin reports, Simple Moving Average (SMA) and more
Consignment inventory is a business deal when a consigner (vendor or wholesaler) agrees to give a consignee (retailer like your favorite consignment store) their goods without the consignee paying for the inventory upfront. The consigner offering the inventory still owns the goods and the consignee pays for them only when they sell.
This helps you track historical sales to help you develop an estimates of expected forecast demand that your customer will purchase.
ABC Analysis helps you get better control of your inventory that improves availability, reduces losses and costs. This can also help you control over your stock-outs resulting in improving production efficiency and have more reliable cycle time and, therefore, improved customer satisfaction.
Minimum order quantity.
If you’re buying minimum order quantity you should also try to consider your reorder point and rate of your inventory turnover, this can help you to optimize your business.
Economic order quantity.
Economic order quantity helps you to minimize the total cost of your inventory, such as holding cost, order cost, and shortage cost. This is one of the tools that can help you especially for small business owners who need to make the decision about how much inventory to keep on hand, and how many items need to order each time.Economic order quantity helps you to minimize the total cost of your inventory, such as holding cost, order cost, and shortage cost. This is one of the tools that can help you especially for small business owners who need to make the decision about how much inventory to keep on hand, and how many items need to order each time.
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