Can an Inventory Management Plan simplify life for everyone in the company?
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Create an Inventory Management Plan
An inventory management plan is an organized approach to managing and overseeing a business’s storage, use, and acquisition of inventory. The plan, your Inventory Management System, ensures that the right amount of inventory is available at the right time. Another requirement, it must be in the right place while also ensuring that the costs associated with the inventory remain as low as possible. A successful inventory management plan requires careful planning and implementation, as well as a thorough understanding of the goals of the business and the steps necessary to achieve those goals.
1. Determine Your Inventory Needs: The first step is determining the type and amount of inventory needed to meet the business’s goals. This includes current inventory levels, the demand for the product, the cost of the product, and any seasonal fluctuations.
2. Establish Reorder and Replenishment Procedures: Reorder and replenishment procedures ensure the right inventory amount is always on hand. This includes setting up an effective reorder point. Also, establishing procedures for monitoring inventory levels and taking action when levels become too low.
3. Use Automation and Technology Solutions: Automation and technology solutions streamline inventory management processes and improve accuracy. Automated reordering, inventory forecasting, and monitoring inventory levels help to ensure that the right amount of inventory is available at the right time.
4. Develop an Accurate Inventory Forecasting Strategy: An accurate inventory forecasting strategy is essential for ensuring that the right amount of inventory is always available. This includes taking into account the current demand for the product and any seasonal or other fluctuations in demand. By considering these factors, businesses can ensure they have the right amount of inventory at the right time without running the risk of overstocking or understocking.
Monitor Inventory Levels in your Inventory Management Plan
Monitoring inventory levels is an essential part of an effective inventory management plan. This process involves tracking the inventory in stock and taking action when levels become too low. Monitoring inventory levels helps to ensure that the right amount of inventory is always available without running the risk of overstocking or understocking.
To be successful in Inventory Management, businesses must first have an accurate understanding of the current inventory levels. This includes both the current quantity and cost of the inventory. This understanding can be through regular inventory audits or automated inventory tracking systems.
Once understood, businesses must then set up an effective reorder point. This is the point at which the business should order more inventory so that the right amount of inventory is always on hand. The reorder point should consider the product demand, the inventory cost, and any fluctuations in demand.
Besides setting up a reorder point, businesses should also watch their inventory levels. You can do this with pen and paper or through automated inventory tracking systems. Automated systems will track the amount of inventory in stock and generate alerts when the inventory levels reach the reorder point.
Regular monitoring of inventory levels is essential for ensuring that the right amount of inventory is always available. This helps to reduce stockouts and eliminate excess inventory. This will support cost savings efforts. By understanding the current inventory levels, setting up a practical reorder point, and monitoring inventory levels, businesses can ensure that they have the right amount of inventory, at the right time, without running the risk of overstocking or understocking.
Optimize Warehouse Storage Space
Optimizing warehouse storage space is essential to any successful inventory management plan. Warehouse storage space optimization helps ensure the inventory is placed in optimal warehouse areas.
To optimize warehouse storage space, businesses must understand current inventory levels. This includes both the current quantity and cost of the inventory. If needed, audit your inventory through cycle counts. Update the inventory levels in your automated inventory tracking systems.
Once businesses understand the current inventory levels, businesses must then determine the most efficient way to store the inventory. This includes considering the size and shape of the inventory, the types of storage containers available, and the amount of space available in the warehouse.
Besides understanding the current inventory and the available storage options, businesses must also consider the cost of storing the inventory. This includes the cost of the storage containers, as well as the cost of labor and overhead associated with moving, sorting, and organizing the inventory.
Businesses can develop an optimized storage plan once they know the cost and available storage space. This plan’s objective will be to maximize the available storage space and minimize the inventory cost. This can include utilizing high-density storage systems, space-saving solutions, and automated systems to organize and track the inventory.
Businesses can optimize their warehouse storage space by understanding the current inventory levels, determining the most efficient way to store the inventory, and implementing an optimized storage plan. This helps to maximize cost savings, eliminate excess inventory, prevent shortages, and reduce the travel time from pick to pack.
Analyze Inventory Data to Identify Trends in your Inventory Management Plan
When developing any system, you must analyze data to identify trends. If not, it can be very easy to over or understock inventory. When your product is a perish item, this can be a concern with your inventory.
There are many different ways to analyze your inventory to identify trends. I would review the inventory usage in the prior month, Monthly Averages for T3M (Trailing 3 Months), T6M (Trailing 6 Months), and T12M (Trailing 12 Months). Based on these numbers, I would calculate percent differences to reveal trends. If you identify this past month in the valley, you can conclude the upswing will start soon. If you identify this past month at the summit, you can assume the downswing will start soon.
Depending on the company’s growth, your valleys may be shallow while the peaks become closer and closer. While in growth mode, this will be your biggest challenge.
To discover more about analyzing inventory with data, click here to read the blog The Data-Driven Inventory Revolution (Achieve Success with Data Analysis).
Utilize Vendor Managed Inventory
Vendor Managed Inventory (VMI) can take many different forms. These different forms will be based on the vendor and customer technology advancements, their ability to work as one unit, and legally binding contracts.
A VMI may look like this: a manufacturing company may expect to use 100,000 units of raw material A that is non-perishable. The supplier of raw material A price looks good at 500M units and even better at 1MM units. But at the 2MM units, the price is the best. The space for 2MM units is more than the manufacturing company can handle. The supplier agrees to produce raw material A for the manufacturing company under these terms:
For the first 90 days, inventory not taken will remain at the supplier’s warehouse free of charge.
On day 91, the supplier bills 50% of the remaining inventory at the warehouse to the manufacturing company. The manufacturing company will pull as needed from the supplier.
On day 181, the manufacturing company pays the supplier in full for the inventory. The manufacturing company will pull inventory as needed.
In this case, the raw material A supplier will receive a lower production cost when producing 2MM units instead of 500M units. In turn, the manufacturing company will receive a lower price for raw material A. WIN-WIN situation.
In this next example, the manufacturing company sends information to the supplier on raw material A. The information sent is the units produced. The supplier schedules the production of Raw Material A for the manufacturing company.
This is good, except for the unit of measurement. Instead of units produced, send the actual usage of raw material A to the supplier.
The supplier develops a trend analysis. This trend analysis, internal analysis, and schedules determine when the supplier produces raw material A for the manufacturing company.
The ultimate is a direct link between the manufacturing company and the supplier. The supplier can view real-time production usage. The only input the manufacturing company needs is the units charged to waste. The supplier will see live data. The supplier can depend on the data as it happens.
Vendor-managed inventory (VMI) is an inventory management system where the supplier can directly access real-time data on the customer’s inventory levels. This system ensures that the customer always has the right amount of inventory on hand without running the risk of overstocking or understocking.
Using VMI, the supplier can watch the customer’s inventory levels in real-time and take action when levels become too low. This includes automatically reordering inventory and adjusting the order quantities based on current demand.
This system also helps reduce inventory costs, as the supplier can manage the inventory without needing more staff or resources. Also, the supplier can turn products around quicker, reducing stockout risk and increasing customer satisfaction.
When utilizing VMI, businesses must also ensure that the supplier has access to accurate and up-to-date data on the customer’s inventory levels. The supplier must have automated inventory tracking systems and perform regular inventory audits.
Your Inventory Management Plan must Manage Excess Inventory.
Managing excess inventory is an essential part of any successful inventory management plan. The plan’s design is to reduce the cost of storing and managing excess inventory and to maximize the value of the inventory that is not currently in use.
To manage excess inventory, businesses must first identify the inventory that is in excess. The supplier must have automated inventory tracking systems and perform regular inventory audits. When excess inventory is identified, businesses must determine the most cost-effective way to manage it.
One option for managing excess inventory is to sell it. Fire sales and discounts through the use of online marketplaces or auction sites. This option can help to reduce the cost of storing and managing the inventory. This is an option I do not prefer.
Another option for managing excess inventory is to donate it. This option can help to reduce the cost of storing and managing the inventory and generate goodwill for the business.
In addition to selling or donating excess inventory, businesses can also consider storing the inventory in offsite warehouses. This can help reduce the cost of storing and managing the inventory and maximize the value of the inventory that is not currently in use.
By understanding the current inventory levels, determining the most cost-effective way to manage the inventory, and implementing an optimized plan to manage the inventory, businesses can ensure that they are managing their excess inventory in the most effective way possible. This helps to maximize cost savings, eliminate excess inventory, and ensure that the right amount of inventory is always available at the right time.
These last two (2) items have the most impact on any business.
This is valid for small, medium, and large companies.
I identify these as game changers in any business.
This will allow your business to scale, not grow, but scale!
Let’s talk about them…
Utilize Cycle Counting in your Inventory Management Plan
Cycle counting is a key tool in inventory management that involves regular monitoring and tracking of inventory. By utilizing cycle counting, businesses can ensure that their inventory is accurate and up to date. This helps to prevent costly errors due to discrepancies and can quickly identify and take corrective action when needed. Utilizing cycle counting also helps to improve visibility into inventory levels, which is essential for proper planning and forecasting. This can help to minimize overstocking or shortages and enable better decision-making.
Cycle counting also helps to reduce the costs associated with inventory management. By regularly monitoring inventory, businesses can quickly identify issues and take corrective action, reducing the time and resources that would otherwise be needed to track and monitor inventory manually. This can lead to cost savings in labor, time, and materials.
Finally, cycle counting ensures inventory levels are properly stated. By monitoring inventory levels regularly, businesses can better manage their inventory levels and reduce the risk of overstocking or shortages. This helps ensure businesses have the right products and materials available when needed.
In short, cycle counting is an effective, efficient, and reliable way to watch inventory. It helps to ensure that inventory is accurate and up to date, which is essential for proper planning and forecasting. It also helps identify discrepancies and take corrective action, preventing costly errors and ensuring accurate inventory levels. Utilizing cycle counting also helps reduce inventory management costs and enables better decision-making. For these reasons, cycle counting is a must for any inventory management system.
How should we approach Cycle Counting? Approach Cycle Counting with the Pareto Principle. 80% of your usage will be 20% of the items. In this case,
Items in the A-Class will be the top 20% movement/usage items. Count A-Class items twice a month.
Items in the B-Class will be the next 50% in movement/usage items. Count B-Class items twice a quarter.
Items in the C-Class will be the last 30% of movement/usage items. Count C-Class items once a quarter.
Create Policies and Procedures: This system should include the processes and procedures for tracking, ordering, and storing inventory. It should also include processes for tracking the inventory flow from the supplier to the customer and the inventory cost.
Policies and procedures are essential components of any inventory management system. Policies and procedures provide a framework and pathway for reducing the risk of errors and other mistakes.
Policies and procedures provide structure and guidance for the system, which helps to ensure that everyone involved is on the same page. This can help improve organizational communication and ensure everyone works together towards the same goals. Policies and procedures help ensure the system is orderly, minimizing the risk of mistakes and errors.
Policies and procedures can help ensure inventory levels are properly managed. By setting clear guidelines, businesses can better manage their inventory levels and ensure they have the right products and materials available when needed.
Finally, policies and procedures can also help ensure the system is secure. By setting out clear guidelines, businesses will limit unauthorized access and misuse. This helps to protect the integrity of the system.
In short, policies and procedures are essential components of any inventory management system. They provide structure and guidance for the system, helping to ensure operation efficiently and effectively. Policies and procedures help to ensure inventory levels are properly managed, and the system is secure. For these reasons, policies and procedures are a must for any inventory management system.
Check out our blog, Why Policies and Procedures are Important in Business.
I want your opinion on What Makes an Awesome Inventory Plan. Please tell me in the comments below.
Have a great day, and be safe.
