As a company owner, you understand how important inventory management is to business survival. Both supply and demand must be balanced, market developments must be anticipated, and whatever items are selling well must be tracked. The goal is to ensure that your inventory levels are proper so that you do not run out of products when they are most required.
As a company owner, you understand how important inventory management is to business survival. Both supply and demand must be balanced, market developments must be anticipated, and whatever items are selling well must be tracked. The goal is to ensure that your inventory levels are proper so that you do not run out of products when they are most required.
Inventory management techniques
Businesses must comprehend their inventory management techniques, of which there are three primary categories. Knowing these approaches allows you to choose the best one to use in your company at any point in time. Let’s continue to find out what are the three major inventory techniques.
Inventory Management Technique Explanation
Inventory management success boils into three critical parts:
- Establishing a dependable inventory management system that allows you to retain precise inventory levels. This can help you save both time and money while also increasing inventory turnover.
- Creating and tracking demand projections so you can tweak your strategy depending on demand. Taking time to understand may help you avoid ordering extra inventory, unsold goods, and cash-flow issues, all while cutting your inventory cost. This is particularly true if you sell perishable goods.
- Inventory management and supply-chain activities are becoming automated (to save time and reduce the likelihood of human error). This system can update the latest inventory, inventory prices, and inventory amounts throughout platforms seamlessly. It can also create purchase requisitions depending on the reorder points you specify—just ensure your specified reorder point is not the same as your safety inventory levels. This will assist you in optimizing lead time and accounting for preorders and other concerns.
These three aspects will provide you with the necessary basis for long-term development, precise order fulfillment, and a positive client experience. Let’s take a closer look at how you may use these approaches to improve inventory management.
3 aspects of inventory management techniques
What Are The 3 Major Inventory Management Techniques?
The three most familiar inventory management approaches are the push technique, the just-in-time technique, and the pull technique. These techniques provide companies with many approaches to satisfy client demand. Keep reading to discover more about each of the following three techniques of inventory management:
The Push Technique Overview
The push approach is an inventory management system in which goods are “pushed” from the producer to the shop, warehouse, or company. A buyer or staff will then buy or employ the items from the available stock.
To effectively utilize the push technique, a firm must accurately evaluate product needs. Determining the quantity of an item required and when it is needed is crucial. Utilizing software for managing inventory management allows organizations to analyze how the stock has been utilized over time, providing crucial insights into the quantity of stock they may be required to buy over the course of a calendar year.
Assuming a fashion store may store a large number of sweaters and thick coats in the winter, and only a few of them in the summer. These retailers determine the number of products to buy depending on the number they’ve sold earlier and when. The push method is excellent for enterprises that can precisely evaluate client needs.
Push and pull techniques
The Pull Technique Overview
The pull technique is an inventory management system where a shop, warehouse, or business only “pulls” a good whenever a buyer or staff orders it. Rather than traveling down the supply chain, a product climbs up, which might take a long time! The pull technique is commonly utilized for specialty goods, mainly expensive items, or items with little or unforeseen need.
Many bridal gowns, for example, are “pulled” for brides-to-be just after customers have handed over their credit cards. These girls select their gowns from model gowns or from an e-commerce website, and the final gown would either be made for them or received at the time of order. Buyers are typically fine with it taking a long time since it is the industry norm. However, the pull technique is not for every business, particularly if buyers can acquire identical products from a different source right away.
The Just-in-time (JIT) Technique
The pull technique refers to the just-in-time inventory approach in that organizations buy inventory “just in time” to satisfy a purchase request or a business necessity. In fact, assuming a JIT inventory management approach successfully needs dependable vendors, suppliers, and 3rd-party logistics providers. Without them, a firm cannot fulfill client demand, which is nearly always a remedy for catastrophe.
JIT technique
JIT inventory reduces stock carrying costs, reduces waste, and improves working capital. Businesses that depend on just-in-time inventory, on the other side, are rarely able to fulfill needs and may have to overspend for an item in order to ship it to their buyers promptly.
What Are 5 Additional Inventory Management Techniques?
Inventory management is a field that is constantly evolving, and there are always new techniques and approaches being developed to help businesses better manage their inventory. Here are five of the additional inventory management techniques that you should be aware of:
Bulk Shipments
Bulk shipments are a type of bulk shipping in which enormous amounts of products are placed aboard transport boats without being packaged. These cargoes are often handled on deck and in the cargo of a ship in huge, metal shipping containers. This method is built on the idea that purchasing in bulk is less expensive. The strategy is ideal if a company is confident that its items will sell, but it can cause problems if demand unexpectedly shifts.
Bulk Shipments
ABC Inventory Management
ABC analysis is an abbreviation for Always Better Control Analysis. It is a method of inventory management in which inventory items are grouped into three groups: A, B, and C. The products in the A class of inventory are tightly restricted since they are high-priced stock, that may be available in smaller quantities but are highly expensive. Because the goods in the B class are less costly than those in the A class, and the quantity of products in the B class is moderate, the control level is likewise moderate. Because the C class has a substantial percentage of inventory products that necessitate fewer expenditures, the management level is low.
Backordering
Backordering is the practice of letting users make purchases even if they do not have enough goods on hand. Backordering is used by businesses once a sudden rise in sales implies that things are being sold quicker than they can be supplied. It’s a standard tactic utilized by shops all around the world when there’s an increase in demand.
Backordering allows you to keep your client base and maintain sales even when you are short on inventory. It also improves your company by lowering expenses, eliminating waste, boosting the value of your products, and enabling you to accept special orders. Backordering may be a profitable business strategy if you provide excellent customer service and use an effective inventory management system.
Back Ordering Flow Diagram
Consignment
This method enables a consignor, often a wholesaler, to ship products to a consignee, typically a retailer, without the consignee needing to pay for the items in advance. The consignor retains ownership of the items, and the consignee pays for them only if they are sold. This sounds fantastic, but it also contains significant hazards.
Cycle Counting
Cycle counting is a check and balance procedure used by businesses to ensure that actual inventory counts match stock records. This approach entails making a frequent count and noting particular product adjustments. They have enumerated all of their possessions throughout time.
Cycle of cycle counting
This method entails counting a limited amount of goods on a specified day rather than performing a comprehensive stocktake. This strategy allows your company to confirm proper levels of inventory in your inventory management system on a constant schedule.
Conclusion
Now you know what are the 3 major inventory management techniques. In order to keep your business running smoothly, it is important to have a system in place for managing your inventory. The three major inventory management techniques are the pull technique, push technique, and JIT technique. Implementing one or more of these techniques can help you keep track of your stock, avoid overstocking or running out of products, and make sure that you always have what your customers need.
