- Methods of keeping inventories:
- Inventory Management Methods:
Methods of keeping inventories:
When it comes to keeping and managing inventories, there are different methods and methodologies.
Each method has some attributes that fit in one type of inventory to another, chaktty said.
Periodic Inventory System
This method involves physically counting the inventory at specific intervals, such as monthly or annually.
The inventory balance is adjusted based on the count, and the cost of goods sold is calculated by taking the difference between the opening and closing inventory balances.
Perpetual Inventory System
In this method, inventory is continuously tracked in real-time using technology, such as barcode scanning or RFID, according to Techpally.
Each inventory item is recorded electronically as it is bought or sold, providing up-to-date information on stock levels and valuation.
This method requires the use of inventory management software or an ERP system.
Just-in-Time (JIT) Inventory
JIT is an inventory management strategy where goods are ordered and received just in time for production or customer demand.
The goal is to minimise inventory carrying costs by reducing stock levels and relying on efficient supply chains and production processes.
Economic Order Quantity (EOQ)
EOQ is a formula-based approach that calculates the optimal order quantity to minimise total inventory costs.
It considers factors such as demand, ordering costs, carrying costs, and lead time to determine the most cost-effective quantity to order.
ABC analysis categorises inventory items based on their value and importance. Typically, items are classified into three categories: A, B, and C.
Category A represents high-value items that contribute to a significant portion of sales, while Category C includes low-value items with lower sales impact.
This analysis helps prioritise inventory management efforts and the allocation of resources.
It’s important to note that businesses may use a combination of these methods or customise them to suit their specific needs and industry requirements, business pally.
The chosen method should align with the business goals, optimise inventory levels, and improve operational efficiency.
Inventory Management Methods:
It involves various activities, including:
Analysing historical data and market trends to predict future demand for products.
This helps in determining optimal inventory levels and avoiding stock-outs or overstocking.
Establish minimum and maximum stock levels for each product to maintain a balanced inventory.
Regular monitoring and analysis of stock levels are necessary to reorder items promptly.
Managing purchase orders and sales orders to keep track of incoming and outgoing inventory.
This includes processing orders, updating stock levels, and coordinating with suppliers and customers.
Implementing systems, such as barcode scanning or RFID (radio frequency identification), to accurately track inventory movements.
This allows for real-time visibility of stock levels, reduces manual errors, and improves inventory accuracy.
Establishing strong relationships with suppliers to ensure the timely delivery of goods and negotiate favourable terms.
Efficient communication and coordination with suppliers are essential for maintaining a smooth supply chain.
Optimising the layout and organisation of the warehouse to facilitate efficient storage, picking, and packing of inventory.
This includes implementing proper shelving, labeling, and inventory categorization systems.
Assigning a value to the inventory on hand for financial reporting purposes.
Various methods, such as the first-in, first-out (FIFO) or weighted average cost methods, can be used to determine the value of inventory.
Conduct regular analysis of inventory data to identify trends, slow-moving or obsolete items, and opportunities for improvement.
This helps in making informed decisions regarding pricing, promotions, and inventory optimization.
Technology and software
Utilising inventory management software or enterprise resource planning (ERP) systems to streamline and automate inventory-related processes.
These tools provide real-time data, analytics, and integration with other business functions, Techpally said.
Implementing continuous improvement initiatives to enhance inventory management practices, chaktty advised.
This involves regularly reviewing and refining processes, adopting best practices, and staying updated with industry trends and technologies.
By implementing effective inventory management practices, businesses can optimise their supply chain, reduce carrying costs, improve customer satisfaction, and achieve higher profitability.