According to the well known Merriam-Webster dictionary, “inventory control” can be defined as:
“coordination and supervision of the supply, storage, distribution, and recording of materials to maintain quantities adequate for current needs without excessive oversupply or loss.”
When it comes to wholesalers as well as distributors that deal with durable goods – inventory control can be further defined in greater detail as the process employed to maximize a company’s overall use of inventory. The primary goal of inventory control is to generate the highest profit from the least amount of inventory investment. Moreover, to do so all without denigrating customer satisfaction levels.
Yeah, we know. That sounds like a pickle, doesn’t it?
In this article, we will go over six inventory control challenges that warehouse distributors face
Techniques of Inventory Control
There are several types of inventory control techniques which you can employ to your wholesale distributors so that you can ensure that their inventory control will maximize efficiency and be quite a profitability as well.
Here are Six Inventory Control Challenges That Warehouse Distributors Face
1) Establishing Annual Stocking Policies
It is essential that management decides the maximum as well as the minimum level of stocks and supplies that should be kept in warehouses or across your network of the warehouse you may have in different locations. Management must also consider setting optimized re-order levels, along with safety stock levels, and must have an average inventory level so that they can be sure they can cover the costs.
Yes, this is a mouth full and seems like a lot but the more you plan out for these types of events, the more you will be able to save in the end.
2) Preparation of Inventory Budgets
“Failing to prepare is preparing to fail.”
Several organizations have an annual inventory budget (and this makes much sense). These organizations usually prepare well in advance before they start their inventory collection. Your company’s budget should include the overall cost of ownership so that you can keep inventory on hand especially during that year’s account period.
This can include things such as:
- materials cost
- fixed operational costs
- carrying costs
- logistics costs
- redistribution costs
- and any other additional miscellaneous expenses which could contribute to your overall total costs of ownership
3) Maintaining A Constant Inventory System
The inventory system is also known as, and referred by many as, “the automatic inventory system.” What this method of design is meant to do is help keep a constant track of the number of items you have left in your stock.
4) Inventory Turnover Ratio
This technique is a calculation which is used to determine how quickly the inventory will be used up or “turned over” in a specific give time-period. The higher the ratio, then the shorter the shelf life of the stock, as well as the typical leads which will, in effect (of the higher rate) offer a higher sales volume and in turn be much more profitability for companies that may have lower profit margins.
Inventory turnover ratio is a technique which should be closely watched. Over the course of each product’s life cycle, the demand will start to fluctuate as well as cause variability in the supply chain.
5) Establishment of Optimized Purchasing Procedures
To ensure that inventory of the warehouses is under adequate control, the management must start to adopt a proper purchasing procedure which will align with the actual sales history and the demand pattern data.
All inventory items that have not had an inventory turnover, or that have not been sold within a specific give timeframe, should then be classified, or considered, as old stock.
Once this happens, the old inventory should be liquidated from stock so that you can eliminate unnecessary carrying costs. Any item that has a declining customer demand should also be flagged in the system.
It is all about making saving the company or business money.
6) ABC Analysis and ABC Classification
One of the fastest moving products which are in your inventory should be located closest to your shipping, staging, and your receiving area. As the demand for a highly desired product decreases over time; people are mercurial (what is hot one second can go cold the next).
The products in your inventory should also be migrated backward so that you can free up space for new items that may have a higher inventory turnover or for new product introductions that have high demand.
Some Of The Challenges You May Face
Many distributors report having the same problems when it comes to inventory control:
They experience stock-outs of other products which result in backorders, lost sales, as well as dissatisfied customers.
They have too much of certain products which then in turns lead to an excess in inventory thus tying up working capital as well as profitability.
They lose track of what is actually in their inventory because their legacy applications cannot adequately keep up with the growing demand.
With many of these common challenges, the best practices that one can start to implement are to eliminate or reduce the recurrence of these issues.
A Few Quick Solutions
1) Categorize Your Inventory
Inventory optimization software, like Eazy Stock, can quickly help inventory managers track item’s demand and lifecycle and do so across nine different demand patterns.
2) Automate Demand Forecasting
Automated demand forecasting can be of great use as it can take the guesswork out of how much you have in your inventory.
3) Replenishment Automation
Having a centralized inventory management system with an inventory optimization software will enable your company to have better tracking inventory.
4) Invest in Inventory Optimization Technology
A majority of wholesalers, as well as distributors, rely heavily on antiquated technology platforms such as ERP or WMS to drive their planning, forecasting and replenishment endeavors. This, unfortunately, is the type of systems that will work against your companies best interests.
Companies looking to improve and gain a step above their competition need to evaluate add-on systems which will support faster and better operations as well as offer more efficient operations all while saving costs and increasing service levels.