Introduction:
Effective inventory management is crucial for modern businesses aiming to streamline operations and reduce costs. Inventory optimisation, in particular, plays a pivotal role in balancing supply and demand dynamics, ensuring businesses maintain optimal inventory levels while meeting customer expectations. This blog explores the concept of inventory optimisation, its techniques, tools, and the challenges companies face in implementing effective strategies.
What’s Inventory Optimisation (IO)?
Inventory optimisation reduces inventory holding time and amount. It provides functions to maintain precise inventory levels and meet client demand.
Supply chain management IO involves anticipating product demand, modifying stock levels, and using just-in-time production to avoid overstocking and understocking.
Supply chain IO helps organisations keep their saleable inventory moving while spending less money. These companies can cut stock, stock-outs, and losses by optimising inventory.
Why Is Inventory Optimisation Vital?
Inventory optimisation and management reduce product carrying costs for the firm. This section details the importance of IO services.
Cut working capital
Optimising inventory reduces buffer inventory and working capital. Customers obtain the correct goods at the right time without overstocking.
Inventory optimisation software can significantly reduce inventory holdings so capital can be invested in other business areas.
Planning inventory
Inventory optimisation methods aid inventory planning without overstocking. Teams can have replenishment and safety stock quantities determined by businesses. This lets them optimise allocations via proximity.
Remove supply-chain variations
Centralised inventory systems improve visibility of manufacturing costs, procurement, and service needs. Reduced manufacturing and transportation expeditions and smooth product flow will be seen.
Please more customers
Demand alignment, IO software, and improved delivery can help you reduce stockouts and please more consumers. Brand loyalty and return customers will rise.
Workplace transparency
An optimised inventory informs staff of inventory movements and controls, boosting confidence. Supply chain IO management transparency reduces handling and storage, lowers costs, and shortens lead times.
Optimisation of Inventory
These steps build a good IO function:
Demand forecasting
Demand identification is a crucial IO stage for supply chain management. Using sales projections and inventory histories. Informed planning decisions help estimate period revenue.
Businesses must consider this when planning flash sales, festive discounts, and recruiting additional workers or renting more space for growth.
Managing product lifecycles
Based on its influence and popularity, every new product stimulates future demand. Every seller must know the product life cycle stages for each SKU. Whether product demand will expand exponentially or be stable after a certain time might assist determine which products to keep in stock and which to remove.
Making inventory policies standard
Supply chain inventory optimisation and a good inventory policy can assist staff identify and classify important stock-keeping units. This maintains cash flow and tracks essential inventory.
Take demand and supply uncertainty into account
Manufacturing companies must properly store and refill products to avoid customer attrition. Having trusted vendors helps preserve backup procedures for on-time stock-keeping unit purchase. It lets the supplier schedule and deliver regularly.
Monitor buyer behaviour changes
Inventory management systems provide detailed warehouse stock information. This data and analytics enable business owners analyse client behaviour and identify phased-out and best-selling items.
Inventory automation and digitization
Poor manual inventory management can cause poor service, delays, frozen capital, and plenty of unsold commodities. Automating inventory management can reduce manual errors, overstocking and understocking notifications, and maintenance costs for product makers.
Consider promotional campaigns
Storage of unsold products raises maintenance costs and delays capital use. Forecasting and inventory optimisation can be affected. End-of-season promotions assist clear inventory and optimise inventory.
Techniques to optimise inventory
Inventory optimisation aims to balance what, how much, and when you buy. The correct IO strategy boosts corporate investments and goals.
Best IO tools and practices to assist your organisation do this:
Forecast demand.
Utilising inventory optimisation technologies, you can forecast future revenue and sales by making smart supply selections. Historical order data can assist predict demand by revealing sales trends. Accurate demand estimates help you save money, enhance supply chain management, and improve customer service.
All manufacturing teams know about stock-keeping unit purchases. This helps them fulfil orders on time and prevents extra inventory from going obsolete.
Assess safety stock.
Buffer inventory or safety stock is excess merchandise for emergencies or supply chain failures. Inventory teams must regularly account for safety stock and park supplies.
All of the following for each SKU are needed to determine safety stock:
- Max lead time
- Maximum daily use
- Average lead time
- Average daily use
Apply reorder point formula
Knowing the minimum stock inventory and best reorder times is crucial. Reorder points are calculated using the formula:
ROP = Average daily demand * Lead time in days + Safety stock
Lead time includes order processing, shipping, and any other delays.
Audit inventory
Inventory optimisation services enable daily and ad hoc warehouse transaction checks. Inventory shrinkage, storage, staffing, and depreciation are continuously monitored.
The figures can be used to calculate and eliminate major disparities. Inventory audits are easier with digital inventory tracking.
Monitoring SKUs
Inventory management systems can update, track, and manage products across the distribution network by syncing SKUs. It can prevent overselling and stockouts.
Inventory optimisation lets you see real-time inventory levels and integrate goods across all sales channels to track SKUs.
Optimise warehouse inventory distribution
Inventory fulfilment flows must be tracked throughout warehouses. Using alternative distribution routes and optimising supply chain possibilities helps minimise order delivery costs.
Inventory optimisation services across several fulfilment centres minimise shipping costs and speed up order delivery by strategically distributing SKUs. Modern fulfilment networks let you track SKU performance at each site and improve inventory selections.
This guarantees you have the proper goods in stock and ready to dispatch. It reduces inventory variation and obsolescence costs, improving cash flow.
Problems with inventory optimisation
Inventory optimisation improves company capabilities but is complicated. Some are listed below:
Supply chain disruption offset
Natural calamities and worldwide lockdowns impair manufacturing supply chains. Your IO approach should create a strong supply chain that prevents stock outrages and meets consumer requests.
Variable customer demand
Adapting to shifting customer tastes is difficult. If product demand spikes, only those with it in stock can profit.
Without supply, companies lose sales prospects or spend more to manufacture. After demand drops, businesses may have dead stock. Through forecasting and other methods, they must optimise inventories accurately.
Fulfilled orders momentum
Human errors and disgruntled consumers plague businesses without automated inventory optimisation. In addition, supply chain disruptions and operational mismanagement might affect IO.
It may overload inventory staff as they refill stock, maintain sales, and move blocked goods while delighting consumers. The software helps manufacturers avoid these issues and gain a competitive edge.
Why Optimise Inventory?
The correct inventory optimisation system right-sizes inventory, frees up money for other business operations, and reduces excess in-hand goods. Modernising your inventory optimisation technique can boost profitability swiftly.
Inventory Optimisation FAQs
1. What does Inventory optimisation means?
Inventory optimisation reduces stock levels while meeting customer demand to maximise efficiency.
2. How is inventory optimised?
Inventory optimisation involves demand forecasting, just-in-time inventory, and advanced inventory management software. It also requires regular inventory audits and demand- and lead-time-based inventory replenishment methods.
3. The 4 methods of inventory control
ABC analysis, JIT inventory control, EOQ, and MRP are the four forms of inventory control.
4. Inventory strategy in supply chain management
Management and optimisation of inventory levels is called inventory strategy in supply chain management. It examines inventory placement and movement along the supply chain to meet consumer needs at low cost.
5. The ideal inventory level
Your organisation should have optimal inventory levels. Stock should match customer demand so there is always enough inventory to meet demand.
6. Inventory optimisation benefits?
- Effective inventory and production
- Fewer production and transportation trips
- Better client service
- Get products to market faster without disrupting other products.
Conclusion:
In conclusion, inventory optimization stands as a cornerstone for efficient supply chain management, enabling businesses to navigate through fluctuating demand and supply scenarios with greater agility and cost-effectiveness. By leveraging advanced tools and strategies discussed here, companies can not only reduce operational costs and inventory holding times but also enhance customer satisfaction and operational transparency. Embracing robust inventory optimization practices is essential for any business looking to thrive in today’s competitive market landscape.
