INVENTORY MANAGEMENT TECHNIQUE

INVENTORY MANAGEMENT TECHNIQUE

1. BULK SHIPMENTS

This method is based on the assumption that buying and buying goods in bulk is almost always cheaper. Bulk shipping is one of the key technologies in the industry, which can be applied to goods with high customer demand.

The downside to bulk shipping is that you will need to put extra money on storing inventory, which will be offset by the amount of money saved by buying larger quantities of products and selling them faster.

Pros of bulk shipments

Highest potential for profitability
Less shipment means reduced shipping costs
Works well for staple products with predictable demand and long shelf life

Cons of bulk shipments

Highest Capital Risk Capacity
Rising storage costs
It is difficult to adjust quickly when demand fluctuates

2. ABC inventory management

ABC inventory management is a technique based on placing products into categories in order of importance, with A being the most valuable and C being the lowest. Not all products are of equal value and more popular products should receive more attention.

Although there are no hard and fast rules, ABC analysis relies on annual consumption units, inventory value, and cost importance. The categories usually look something like this:

Category A-

Items of high value (70%)

and small in number (10%)

Category B

Items of moderate value (20%)
and moderate in number (20%)

Category C

Items of small value (10%)
and large in number (70%)

Pros of ABC inventory management

Aids demand forecasting by analyzing a product’s popularity over time
Allows for better time management and resource allocation
Helps determine a tiered customer service approach
Enables inventory accuracy
Fosters strategic pricing

Cons of ABC inventory management

Can ignore products that are just starting up
Often conflicts with other inventory strategies
Time and human resources are required

3.BACKORDERING

Backordering refers to the company's decision to take orders and receive payments for out-of-stock products. For most businesses this is a dream, but it can also be a nightmare… if you are not ready.

When there is only one out-of-stock stock, it is simply a matter of creating a new purchase order for that one item and notifying the customer when the backordered item will arrive. When it makes tens or hundreds of different sales in a day, the problems start growing.

Nevertheless, enabling backorder means sales have increased, so it is a feat that many businesses are ready to take on.

Pros of backordering

Increased sales and cash flow

More flexibility for small businesses

Lower holding costs and lower overstock risk

Cons of backordering

Higher risk of customer dissatisfaction

Longer fulfillment times

4. JUST IN TIME (JIT)

Just in time (JIT) inventory management reduces the amount of inventory that a business has on hand. This is considered a risky technique because you buy inventory only a few days before it is required for distribution or sale.

JIT helps organizations save the cost of inventory holding by keeping stock levels low and eliminates situations where dead stock - essentially frozen capital - sit on shelves for months on end.

However, it also requires businesses to be more agile, with the ability to handle very short production cycles.

Pros of JIT

Lower inventory holding costs

Improved cash flow

Less deadstock

Cons of JIT

Problems fulfilling orders on time

Minimal room for errors

Risk of stockouts

5. Consignment

Consignment involves the wholesaler holding the stock in the hands of a retailer, but retaining ownership until the product is sold, at which point the retailer buys the stock consumed. Typically, sales at consignments involve a high degree of uncertainty from the retailer's point of view and a high degree of trust from the wholesaler's point of view.

For retailers, selling on consignment can have several benefits, including the ability to:

Offer a wider product range to customers without tying up capital
Decrease lag times when restocking products
Return unsold goods at no cost

While most of the risk in selling on consignment falls on the wholesaler, there are still a number of potential advantages for the supplier:

Test new products
Transfer marketing to the retailer
Collect useful information about product performance

If you consider selling on consignment — as either a retailer or wholesaler — set terms clearly regarding the:

Return, freight, and insurance policies
How, when, and what customer data is exchanged
Percentage of the purchase price retailer will be taking as sales commission

6. Drop shipping and cross-docking

This inventory management technique completely eliminates the cost of inventory. When you have a drop shipping agreement, you can directly transfer the customer's order and shipment details to your manufacturer or wholesaler, who then ship the goods.

Similar to drop shipping, cross-docking is a practice where unloading semi-trailer trucks or railroad cars directly onto outbound trucks, trailers, or rail cars.

Essentially, this means that you move goods directly from one transport vehicle to another with minimal or no storage. You may need to stage areas where inbound items are sorted and stored until outbound shipments are completed. In addition, you will need an extensive fleet and network of transport vehicles for cross-docking to work.

7. Inventory Cycle counting

Counting or calculating a small amount of inventory on a specific day without performing stock take for an entire day. This is a type of sample that allows you to see how accurate an inventory record you actually have in stock.

This method is a common part of the inventory management practices of many businesses, as it ultimately helps to ensure that customers get what they want, when they want it, while keeping inventory costs as low as possible.

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