How to Streamline the Inventory Control Process
Streamlining inventory control and management is an ongoing battle the logistician and supply chain managers face every day. Below introduces three key ways to improve the efficiency and effectiveness of your inventory control process.
Know Your ABCs
One of the most popular tools of inventory control and management is referred to as the ABC method, which is an inventory classification technique that divides and organizes products according to sales and importance. To illustrate, category A products are the highest selling items with the highest profit margin. They typically make up only 20 percent of the total inventory volume, but they contribute 80 percent to the total sales. This is commonly referred to as the 80-20 Rule or Pareto principle. Category A products must have the strictest access restrictions and handling guidelines because of their value. Category B products are less valuable products, but still enjoy consistent customer demand. Category C products contribute the least to sales, but they must be kept for the sole purpose of customer requirements.
Try Vendor-Managed Inventory
Vendor-managed inventory (VMI) is almost entirely managed by the vendor or supplier. This means that the vendor determines when and how much to replenish. Vendor-managed inventory is quite old and very common, but mostly popular in certain industries. For example, food service organizations, such as restaurants, and supermarkets, such as national grocery chains, use vendor-managed inventory. In restaurants, there are food suppliers of bread, vegetables and other ingredients that independently manage and stock inventory levels. Major supermarkets often have third-party vendors who supply brand name food products. A small vendor-managed inventory supplier may drive their own vehicle with products in the back and act as a salesperson and inventory supplier. However, large vendor-managed inventory suppliers will have regional sales representatives and multiple logistical and inventory personnel who are assigned to specific clients.
Just-In-Time Inventory Control
This highly efficient inventory control method is considered to be risky, but also highly effective. Just-in-time techniques are excellent ways to reduce overall on-site inventory volumes and thus reduce overhead costs. Just-in-time methodology works by carefully scheduling and synchronizing product manufacturing, transportation and shipment to final destinations. This means that products are manufactured, immediately shipped to a warehouse or distribution center where they are immediately shipped to their final destination. This is an extremely effective way of turning crowded warehouses into lean logistical hubs. However, any delays or miscommunications may cause serious inventory or customer problems down the road. For instance, if a dozen containers of incoming goods are delivered ahead of schedule, the warehouse may not have any available space or personnel to handle the situation. Still, just-in-time is a proven way of helping organizations reduce inventory holding costs by keeping stock levels low and eliminating dreadful situations where stock gathers dust on shelves for months.
In the end, any organization can improve their inventory control processes and procedures through quality improvement techniques and policies. This includes using ABC inventory categorizations, Vendor-Managed Inventory and Just-In-Time Inventory Control systems.