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Inventory Management Tips for Efficient Food Businesses 

19/09/2023by admin0Read: 9 minutes

Inventory Management

The practice of regulating the flow of products and materials through an organisation is known as inventory management. Inventory management’s purpose is to guarantee that there is always enough stock available to suffice client requests while avoiding the risks and expenses associated with inventory holding.

Successful inventory management supervises every stage of the transit of products, from purchase to sale. Effective control mechanisms and frequent inventory audits guarantee you always have the proper quantity of things in the right place, ready to meet demand.

Importance of Inventory Management

Inventory management is critical since it has a direct influence on how well an organisation performs on any given day. Stock control and order management affect many aspects of a company, from the warehouse to the Top Management.

Effective inventory management prevents unsold items from being overstocked, freeing up cash and resources that may be better dedicated to development operations.

Inventory Management Process

Inventory management entails tracking and regulating merchandise as it flows from suppliers through warehouses to consumers.

The five stages in the inventory management process:

  1. Purchasing
  2. Production
  3. Stock control
  4. Order management
  5. Reporting

Stage 1: Purchasing 

Purchasing is the process of obtaining and procuring commodities, resources, equipment, and services essential to manufacture and sell products.

The buying manager or purchasing team issues a purchase order, which is a legally binding document stating what the purchasing company needs and is submitted to a supplier. The provider fulfils the order and delivers the products or service on the agreed-upon deadline.

Inventory management suggests how much inventory should be ordered, when it should be ordered, and where expenses may be cut.

Stage 2 (optional): Production 

Manufacturing is the process of creating finished product from its fundamental components. It is not for every business; wholesalers, for example, may avoid it totally.

All of the component parts, materials, sections, and parts required to make a product must be monitored, often with the help of a document called- ‘Bill of Materials’, so that a company can accurately estimate production capacity and costs.

Stage 3: Stock Control 

Stock control is the third stage in the inventory management process that deals with items and raw materials after they’ve been acquired or manufactured by a company but before they’re sold. It entails managing where and how inventory is held, as well as maintaining minimum and maximum levels for each product line.

This stage of the inventory management process necessitates good stock-level auditing and warehouse optimisation. The purpose of stock control is to guarantee that the appropriate amounts of items are stored in the appropriate place to allow for effective order fulfilment.

Stage 4: Order Management 

Order management is a procedure that connects inventory management with sales. The processing and fulfilment of client orders is referred to as order management.

There are various steps involved in the order management process, including:

  1. Order picking
  2. Packing
  3. Shipping
  4. Returns management
  5. Customer service
  6. Warehouse management

Since client satisfaction is a vital part of the success of any organisation, order management is essential in inventory management and should be optimised on a regular basis for efficiency.

Stage 5: Inventory Reporting 

Inventory reporting is the process of capturing and analysing essential sales and inventory data to make the best judgements possible at any given time. It entails tracking several inventory data to precisely comprehend the expenses that enter and exit an organisation.

Reporting feeds directly into critical inventory optimisation processes like demand forecasting and inventory planning, allowing a company to ensure the proper budget allocation and mechanisms are in place for optimal success.

Inventory Management Techniques 

Regardless of the size of their company, the use of some of these standard inventory management practices can be an effective way to get control of their inventory. Consider the following essential inventory management techniques.

1) Just-in-time Inventory

Just-in-time (JIT) inventory includes retaining as little stock as possible in order to avoid the expenses and dangers associated with keeping a significant volume of stock on hand. The idea is that commodities and materials be only ordered and used when they are required.

While this strategy works effectively for decreasing waste and inventory carrying costs, if not handled correctly, it can lead to unpleasant understocking difficulties.

2) Just-in-case Stock Control

Just-in-case or JIC stock control is a strategy used in inventory management to defend against unexpected demand surges and supply chain interruptions. It helps firms to decrease the risk of stockouts and the associated missed sales, as well as negotiate better costs with suppliers.

The main disadvantage of the inventory approach is that it can cause substantial cash flow problems by tying up a Company’s resources in unsold goods.

3) ABC Inventory Management

ABC inventory analysis seeks to find profitable inventory by categorising commodities into distinct categories. It is loosely based on the Pareto principle, which states that the majority of accomplishments result from a small number of efforts.

This inventory management strategy allows you to make sound choices about budget allocation, marketing, and product purchase.

4) Dropshipping

While drop shipping allows businesses to save on overhead and carrier expenses, the main disadvantage is that it frequently provides a bad client experience and leaves little space for quality control before things are dispatched.

5) Vendor-managed Inventory

Vendor-managed inventory, also known as consignment inventory management, allows a consignor, often a wholesaler, to deliver items to a consignee, typically a retailer, without the consignee paying for the products in advance.

The consignor retains ownership of the items, and the consignee pays for them only when they are sold.

6) Cross-docking

Cross-docking is an inventory management approach that reduces the requirement for inventory to be held.

Products are transported to a warehouse where they are promptly processed and prepped for shipping. They are then generally reloaded into other vehicles at the same facility and promptly sent for delivery.

7) Cycle Counting

The inventory cycle count approach includes counting a limited quantity of goods on a specified day rather than performing a full stocktake. This strategy allows an organisation to confirm proper inventory levels in its inventory management software on a regular basis.

8) Economic Order Quantity (EOQ)

The best order amount at any given moment is the economic order quantity. A good EOQ reduces overall holding and ordering expenses. EOQ is a strategy for inventory management that involves applying a specific formula to compute optimal reorder amounts for each SKU. You may assure the efficiency of your refill process by doing so.

9) First In, First, out (FIFO)

First In, First, Out or FIFO is a method of inventory costing that is used to determine the value of inventory stock. The things acquired or manufactured first in a certain product line are the first to be sold to customers under FIFO.

This method simplifies inventory accounting and guarantees that the right value is assigned when computing the cost of goods sold (COGS). It is, however, less appropriate for variable pricing and more complicated than other inventory management approaches.

10) Last In, First Out (LIFO)

Last in, first out, or LIFO, is an inventory costing strategy that, unlike FIFO, includes selling the most recently acquired or manufactured products first and keeping older things until the newer ones are sold.

This approach has various drawbacks, including the fact that it provides an erroneous image of the worth of inventory in a corporation and is not recognised by International Financial Reporting Standards or many nations’ tax regulations.

11) Lean Manufacturing

Lean manufacturing refers to a wide range of management practices that may be applied to any company practice. Its purpose is to increase efficiency by removing waste and non-value-added tasks from everyday operations.

12) Six Sigma

Six Sigma is a process that provides businesses with tools to enhance their company performance (raise revenues) and reduce surplus inventory.

13) Lean Six Sigma

Six Sigma is a process that provides businesses with tools to enhance company performance (raise revenues) and reduce surplus inventory.

14) Demand Forecasting

To predict consumer demand, demand forecasting is based on previous sales data. It is essentially an estimate of the goods and services that a firm anticipates its consumers will purchase in the future.

15) Bulk Shipments

Bulk shipments are a low-cost shipping strategy in which a company palletises merchandise to ship it all at once.

Benefits of Inventory Management: 

Below given are the benefits of efficient inventory management:

1)  Makes Customers Happy

For a consumer, a late delivery might mean an inconvenience. For a business, it can mean lost sales and profits.

Inventory management dictates:

How quickly an organisation deliver products to their customers

How reliably you can fulfil orders

How much visibility you can give your customers

Your customers will be much more likely to come back for more if they know your organisation can consistently deliver orders on time and let them know what’s available. This is especially true for business-to-business transactions.

2) Promotes Business Growth

Inventory management requirements get increasingly sophisticated as organisations grow in complexity. New product lines, employees, manufacturing facilities, and new clients all provide new inventory management issues.

Hence, being proactive is the solution to tackle these issues.

It is vital to develop an effective stock system as soon as possible because delays will increase the cost of implementation as well as provide less time to achieve it.

3) Inventory Management Improves Bottom Line

Inventory management can impart direct benefits to the bottom line of an organisation:

  • It helps businesses add new items and sales channels, assess performance, and provide up-to-date product information to salespeople to increase income.
  • It removes the inefficiencies that cause stockouts, overstocking, and lost stock, lowering holding costs and increasing profitability.
  • It reduces the time and manpower normally spent on inventory administration, lowering employee and overhead expenses.
  • Inventory management collaborates with buying and supply chain management to reduce the cost and effort involved in preparing items for sale. Effective inventory management means paying less for items and making more money on them.

Inventory Management Methods 

There are two common methods or systems for managing inventory: Periodic and Perpetual. Let’s explore the differences.

1) Periodic Inventory Management

Periodic inventory management evaluates inventory and value at regular intervals, with workers physically counting objects at the conclusion of each accounting period. This yields an ending inventory balance, which may be compared to the beginning amount to determine the the average amount of stock. However, as compared to perpetual inventory management, periodic inventory management requires more time and labour and produces less detailed data.

2) Perpetual Inventory Management

Perpetual inventory management is an accounting system that tracks items’ volume and stock-on-hand values while measuring inventory and value in real-time. The average landed cost approach is used to compute COGS. This strategy is appropriate for modern enterprises, but it necessitates the purchase of barcode scanners and software.

Inventory Management Strategies for Businesses 

There are several techniques for successfully storing and marketing things. Organisations should consider their overall business goals as well as the resources at your disposal when determining which to execute.

Let’s take a look at some of the most effective inventory management practices for businesses:

1) Demand planning

Demand planning is the process through which a company seeks to forecast future consumer demand for each product it sells. This method helps organisations to better organise their expenditures and resources, as well as anticipate future storage needs.

Planning starts with data analysis, which feeds into forecasting (predicting demand based on historical data and market patterns), and then moves on to sourcing the correct suppliers and structuring the warehouse (or investing in a new one).

2) Inventory optimisation

Inventory optimisation is the use of a calculated strategy for inventory management to reduce expenses and surplus inventory while enhancing customer satisfaction. It also focuses on ensuring that a company has enough money to support sustainable expansion.

Inventory management is the recording and arrangement of inventory inside an organisation. It examines how efficiently such activities are carried out.

3) Warehouse Optimisation

Warehouse management is crucial to good inventory management. Organisations may reduce the time and cost of workers necessary to manage inventory by streamlining their warehouse structure, operations, and personnel training.

Best Inventory Management Practices 

Inventory management best practices enable businesses to optimise their stock control processes while avoiding risks and bottlenecks.

Anitech’s experts have listed below the 10 key inventory management best practices:

  • Sort your inventory correctly.
  • Install perpetual inventory management software.
  • Determine the best safety stock levels.
  • Carry out frequent stock takes.
  • Transform historical data into actionable business insight.
  • Avoid using untrustworthy spreadsheet-based inventory systems.
  • Determine and keep the minimum inventory levels necessary to fulfil demand.
  • Reduce supply chain risks by putting supplier management first.
  • Track (and enhance) your product’s velocity.
  • Optimise your warehouse layout for speedier fulfilment.

Anitech’s Tips for Effective Inventory Management

Effective inventory management is critical for retailers and business-to-business organisations dealing in stock. Recent research found that 99% of retailers are losing revenue due to unsold inventory stock.

Hence, to help organisations enhance their inventory management, Anitech’s experienced consultants have shared six crucial tips:

1) Focus on Needs

It might be difficult to manage a warehouse full of merchandise.

One technique to make it simpler is to determine the most critical items and prioritise them. It’s unlikely that every item in your warehouse will have the same level of client demand.

Our consultants advice businesses to keep their best-selling objects in stock to head on the path of customer satisfaction.

2) Engage with Suppliers

It is critical to handle supplier relationships properly in any stock-based Company.  Hence, organisations should develop positive connections with their Company’s major suppliers to ensure consistent supply, unlock competitive pricing, and understand new trends that may affect their business.

3) Optimise Inventory Control Process

It might be difficult to deal with various order amounts, replenishment cycle durations, safety stock, predictions, and seasonality. But it doesn’t have to be that way.

Hence, we advice organisations to adjust each process to their individual business, keeping note of what works and what doesn’t.

A substantial improvement in one area is preferable over a few minor improvements all over.

4) Use Real-time Data

Information may be a strong tool if it is accurate and up to date.

Real-time data and analytics may make a significant difference in your organisation, from multilayer inventory management to forecasting data, autonomous ordering, and customised safety stock.

Consider adopting perpetual inventory management software for the most accurate data, since it is the best method to guarantee that the information you want is always at your fingertips.

5) Mobile Inventory

Mobile technology has revolutionised inventory management. Barcode scanning, for example, makes receiving and tracking goods much faster — and helps eliminate unnecessary errors.

Sales apps, meanwhile, empower salespeople with inventory data on the road. You no longer need to be tethered to a computer in your warehouse. You can keep track of key business processes from home, on holiday, or wherever you are.

6) Develop an Inventory Management System

Ad hoc inventory management will only get an organisation so far.

Hence, businesses should develop a robust inventory management system to maintain track of inventory on a regular basis. Every organisation will have different requirements, hence choosing a system that fits in the bill is crucial.

Anitech’s consultants understand this and can offer tailored solutions to organisations to prepare and implement an inventory management system for efficiently managing the inventory.

Call us today at 1300 802 163 or e-mail – sales@anitechgroup.com.

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