Editor's Note: This post was originally published in October 2014 and has been updated for freshness, accuracy, and comprehensiveness.
When you think about smoothing out your company’s inventory process flows, four questions might come to mind:
- How accurately are we tracking raw inventory coming in?
- How accurately are we tracking finished goods going out?
- How are we specifically tracking our inventory throughout our supply chain?
- What are our customers going to order, and how can I make sure I have what they want?
What New Software Can Do For You
Even if you think you know the answers to these questions, there isn’t a company out there that couldn’t benefit from inventory best practices. Newer, more sophisticated resources with stronger reporting tools exist now, which allow you to:
- track raw materials
- track finished goods
- deal with the pick, pack, and ship process in its entirety
- segment your customer base
- categorize your items from most profitable to least profitable
- maximize your inventory turns
- minimize your inventory costs
What Are Best Practices and How Do You Do Them?
More and more frequently, businesses have considered the ABC analysis inventory method to be best practices. This method breaks your stock down into categories, with A items being your most expensive or most important items, B items being your important or moderately priced items, and C being your “marginal” items. You can track these by quantity of sale, movement of items, and profitability. In some cases, you might categorize an item using two or more factors because, for example, some of your items might be highly profitable but slow to sell.
Once you’ve organized your inventory, you can start using best practice algorithms keep your warehouse stocked to its fullest potential. In addition to the ABC stock method, you should also consider your inventory from a customer segmentation standpoint, because that explains how your inventory moves. Some items might sell better in large retail locations, some might sell better in the mid-west, etc. Analyzing and categorizing inventory by customer demographic or location is especially useful in multi-warehouse situations.
Keeping Your Warehouse Well Stocked
One way to keep your warehouse appropriately stocked is by using historical data; that is, what your customers ordered in the past is an indication of what they’ll order in the future. Before you do this, you have to “smooth out” the historical data by removing the peaks and valleys. If you had an uncharacteristic spike or drop in sales that isn’t indicative of your normal sales process, removing those will make your historical trends more accurate. From there, you can predict how your next season, month, quarter, etc. will look.
With that forecast, and some safety stock just in case, you should now consider your bill of materials regarding what you need, even if you’re not a manufacturer. A distributor that re-packages items still needs to make sure they have all of the raw materials in the right place at the right time.
The main goal is to segment your customer base, categorize items from most profitable to least profitable, maximize your inventory costs, and not fill your warehouse with stuff you don’t need and aren’t going to use.
Why You Need an ERP, Specifically
The best way to do all those things in one fell swoop is with an enterprise resource planning (ERP) system. Historically, businesses have done this with software like Microsoft Excel, which requires a lot of manual input and can result in a lot of errors. Some businesses also find it difficult to get historical data out of their system, and other businesses are doing multiple exports, reformats, and reimports because they’re planning by week but their system collects information by month.
ERP systems haven’t always been accessible by the “little guys,” but some vendors now offer ERP systems for small and mid-sized businesses. If you’re looking for different ways to improve your profitability, reduce your team’s workload, and improve your customer service, contact us today.
About Southeast Computer Solutions
Southeast Computer Solutions is based in Miami, Florida, and has additional operations in Mexico. For over 30 years, we have positively impacted the success of small and mid-sized businesses with effective business management implementations that improve our clients’ operations. We listen, we are accessible, and we care. Learn more by visiting our website or calling 305-556-4697.