15 Inventory Management Techniques You Need to Use Today

Posted on March 23, 2018 by Alla

Ever heard of a successful business that became successful while mismanaging its inventory?

We haven’t either. They don’t exist.

Sure, there are plenty of mammoth companies that mismanaged their inventories and lost billions after becoming successful. Walmart losing $3 billion because of out of stocks is a prime example of inventory mismanagement.

But if they want to continue being successful, they’d have to implement better inventory management techniques.

The same is true for you.

If you want to remain profitable and competitive (or get to this point in your business), then you need to know and use as many cost-saving and profit-boosting inventory management techniques and tools as possible.

You can’t afford not to.

To help you out, we’ve listed a variety of different techniques of inventory management. By the end of this post, you’ll be able to use at least a few of them to improve your business operations.

But before we get to the inventory management techniques, let’s quickly define inventory management itself.

What is Inventory Management?

Inventory management is a collection of tools, techniques, and strategies for storing, tracking, delivering, and ordering inventory or stock.

A large amount of capital, if not the majority of a company’s capital is wrapped up in their inventory.

For that reason, it’s incredibly important to control the coming and going of inventory as best you can to minimize losses and maximize profits – which is where inventory management techniques come into play.

Inventory Management Techniques

Below is a list of some of the most popular and effective inventory management techniques you can use to improve your business.

Economic Order Quantity

Economic order quantity is the lowest amount of inventory you must order to meet peak customer demand without going out of stock and without producing obsolete inventory.

Its purpose is to reduce inventory as much as possible to keep the cost of inventory as low as possible.

To help you calculate EOQ, here is the formula from Kenneth Boyd, author of Cost Accounting for Dummies:

Economic order quantity uses three variables: demand, relevant ordering cost, and relevant carrying cost. Use them to set up an EOQ formula:

– Demand: The demand, in units, for the product for a specific time period.

– Relevant ordering cost: Ordering cost per purchase order.

– Relevant carrying cost: Carrying costs for one unit. Assume the unit is in stock for the time period used for demand.

Note that the ordering cost is calculated per order. The carrying costs are calculated per unit. Here’s the formula for economic order quantity:

Economic order quantity = square root of [(2 x demand x ordering costs) ÷ carrying costs]

That’s easier to visualize as a regular formula:

Q is the economic order quantity (units). D is demand (units, often annual), S is ordering cost (per purchase order), and H is carrying cost per unit.

Minimum Order Quantity

Minimum order quantity (MOQ) is the lowest set amount of stock that a supplier is willing to sell. If you can’t purchase the MOQ of a specific product, then the supplier won’t sell it to you.

The purpose of minimum order quantities is to allow suppliers to increase their profits while getting rid of more inventory more quickly and weeding out the “bargain shoppers” simultaneously.

A minimum order quantity is set based on your total cost of inventory and any other expenses you have to pay before reaping any profit – which means MOQs help wholesalers stay profitable and maintain a healthy cash flow.

ABC Analysis

ABC analysis of inventory is a method of sorting your inventory into 3 categories according to how well they sell and how much they cost to hold:

– A-Items – Best-selling items that don’t take up all your warehouse space or cost

– B-Items – Mid-range items that sell regularly but may cost more than A-items to hold

– C-Items – The rest of your inventory that makes up the bulk of your inventory costs while contributing the least to your bottom line

ABC analysis of inventory helps you keep working capital costs low because it identifies which items you should reorder more frequently and which items don’t need to be stocked often – reducing obsolete inventory and optimizing the rate of inventory turnover.

Just In Time Inventory Management

Just-in-Time Inventory Management is simply making what is needed, when it’s needed, in the amount needed.

Many companies operate on a “just-in-case” basis – holding a small amount of stock in case of an unexpected peak in demand.

JIT attempts to establish a “zero inventory” system by manufacturing goods to order; it operates on a “pull” system whereby an order comes through and initiates a cascade response throughout the entire supply chain – signaling to the staff they need to order inventory or begin producing the required item.

Here are some of the benefits of just-in-time inventory:

– Minimize costs such as rent and insurance by reducing your inventory

– Less obsolete, outdated, and spoiled inventory

– Reduce waste and increase efficiency by minimizing or eliminating warehousing and stockpiling, while maximizing inventory turnover

– Maintain healthy cashflow by ordering stock only when necessary

– Production errors can be identified and fixed faster since production happens on a smaller, more focused level, allowing easier adjustments or maintenance on capital equipment

Safety Stock Inventory

Safety stock inventory is a small, surplus amount of inventory you keep on hand to guard against variability in market demand and lead times.

Safety stock plays an integral role in the smooth operations of your supply chain in various ways.

Here are just a few:

– Protection against unexpected spikes in demand

– Prevention of stockouts

– Compensation for inaccurate market forecasts

– And a buffer for longer-than-expected lead times

You probably noticed that the benefits of safety stock are all tied to mitigating problems that could seriously harm your business.

That’s because without safety stock inventory you could experience:

– Loss of revenue

– Lost customers

– And a loss in market share

A safety stock formula is relatively straightforward and requires only a few inputs for calculation.

Here’s the formula we recommend using if you’re just starting out:

(Max Daily Sales x Max Lead Time in Days) – (Average Daily Sales x Average Lead Time in Days) = Safety Stock Inventory

FIFO and LIFO

FIFO and LIFO are accounting methods used to value your inventory and report your profitability.

FIFO (first in, first out) is an inventory accounting method that says the first items in your inventory are the first ones that leave – meaning you get rid of your oldest inventory first.

LIFO (last in, first out) is an inventory accounting method that says the last items in your inventory are the first ones that leave – meaning you get rid of the newest inventory first.

If you handle food inventory management or operate any business with perishable items, then you pretty much have to use FIFO. Otherwise, you’ll end up with obsolete inventory that you’ll have to write-off as a loss.

With that said, LIFO is a great method for non-perishable homogeneous goods like stone or brick. So, if you get a fresh batch of items like these, you don’t need to rearrange your warehouse or rotate batches since they’ll be the first ones out anyway.

Reorder Point Formula

A reorder point formula tells you approximately when you should order more stock – that is, when you’ve reached the lowest amount of inventory you can sustain before you need more.

Here’s the reorder point formula you can use today:

(Average Daily Unit Sales x Average Lead Time in Days) + Safety Stock = Reorder Point

This equation can help you stop being a victim to market spikes and slumps and instead, consistently order the right amount of stock each month.

Batch Tracking

Batch tracking is sometimes referred to as lot tracking, and it’s a process for efficiently tracing goods along the distribution chain using batch numbers.

From raw materials to finished goods, batch tracking allows you to see where your goods came from, where they went, how much was shipped, and when they expire if they have an expiration date.

What are the benefits of batch tracking?

– Easy and Fast Recall

Streamlined Expiry Tracking

– Improved Relationships with Suppliers

– Fewer Accounting Errors from Manual Tracking

Consignment Inventory

Consignment Inventory is a business arrangement where the consignor (a vendor or wholesaler) agrees to give their goods to a consignee (usually a retailer) without the consignee paying for the goods up front – the consignor still owns the goods, and the consignee pays for the goods only when they actually sell.

This inventory management technique creates a win-win partnership between suppliers and retailers as long as they’re both willing to share the risks – and rewards.

Pros for Vendors:

– New Markets

– Low Inventory Carrying Costs

– Direct-to-Retailer Shipping

Pros for Retailers:

– Lower Cost of Ownership

– Minimal Risk

– Improved Cashflow

Perpetual Inventory Management

A perpetual inventory management system is also known as a continuous inventory system.

Here’s how it works:

Perpetual inventory systems track sold and stocked inventory in real-time; they update your accounting system whenever a sale is made, inventory is used, or new inventory has arrived.

All of this data is sent to one central hub that any authorized employee can access.

These are the advantages of perpetual inventory:

– Proactive monitoring of inventory turnover

– Manage multiple locations with ease

– More informed forecasting

Dropshipping

Dropshipping is a business model that allows you to sell and ship products you don’t own and don’t stock.

Your suppliers – wholesalers or manufacturers – produce the goods, warehouse them, and ship them to your customers for you.

The process is simple:

– You receive an order

– You forward the order to your supplier

– Your supplier fulfills the order

Here are the benefits of dropshipping:

– Low startup costs

– Low cost of inventory

– Low order fulfillment costs

– Sell and test more products with less risk

Lean Manufacturing System

The Lean Manufacturing System, often referred to as lean manufacturing, lean production, or simply “Lean” is a system for maximizing product value for the customer while minimizing waste without sacrificing productivity.

This system originated in the Toyota Production System (TPS). There were 3 things TPS attempted to prevent:

– Muda – Everything in your manufacturing process that creates waste or causes constraints on creating a valuable product.

– Mura – Everything that creates inconsistent and inefficient work flows.

– Muri – All tasks or loads that put too much stress on your employees or machines.

There were also 5 principles that every Lean manufacturing system adhered to:

1. Value – A company delivers the most valuable product to the customer.

2. Value Stream – Map out the steps and processes required to manufacture those valuable products.

3. Flow – Undergo the process of ensuring all of your value-adding steps flow smoothly without interruptions, delays, or bottlenecks.

4. Pull – Products are built on a “just-in-time” basis so that materials aren’t stockpiled and customers receive their orders within weeks, instead of months.

5. Perfection – Make Lean thinking and process improvement a core part of your company culture.

By minimizing or eliminating Muda, Mura, and Muri while adhering to the 5 principles, the proponents of Lean Manufacturing believe this inventory management technique can produce the highest-quality products while increasing your revenue and productivity.

6 Sigma

6 sigma, or Six Sigma is a data-driven process that seeks to reduce product defects down to 3.4 defective parts per million, or 99.99966{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} defect-free products over the long-term.

In other words, the goal is to produce nearly perfect products for your customers.

By using statistical models, 6 Sigma practitioners will methodically improve and enhance a company’s manufacturing process until they reach the level of 6 Sigma.

The first and most-used method in Six Sigma is a 5-step process called DMAIC:

– Define

– Measure

– Analyze

– Improve

– Control

The DMAIC process uses data and measured objectives to create a cycle of continuous improvement in your manufacturing methods.

While DMAIC is useful for improving your current processes, DMADV is used to develop a new process, product, or service.

DMADV stands for:

– Define

Measure

– Analyze

– Design

– Verify

The DMADV process uses data and thorough analyses to help you create an efficient process or develop a high-quality product or service.

Through intensive training, focused projects, and effective statistical analyses, 6 Sigma could save your business a lot of money.

Fortune 500 companies have saved an estimated $427 billion after implementing the 6 Sigma methodology, according to iSixSigma magazine.

Lean Six Sigma

Lean Six Sigma is the fusion of Lean Manufacturing with Six Sigma to create a complete system that removes waste and reduces process variation for streamlined manufacturing and optimal product output.

Lean Six Sigma primarily uses Six Sigma processes and methods as the backbone of the system – such as DMAIC and the belt system – to drive focused improvements in manufacturing while incorporating many techniques and tools from Lean to reduce wasteful steps and processes

Demand Forecasting

Demand forecasting is a process of predicting what your customers will buy, how much they’ll buy, and when they’ll buy it.

You can use informal methods such as guessing, or quantitative methods such as analyzing past sales data.

From production planning to inventory management to entering a new market, demand forecasting will help you make better decisions for managing and growing your business.

Here are some demand forecasting best practices:

– Create a repeatable monthly process

– Determine what to measure and how often

– Integrate data from all of your sales channels

– Measure forecast accuracy at the SKU, location, and customer planning level

– Maintain real-time, up-to-date data

The Inventory Management Tool That Puts These Techniques into Action

We’ve given you many inventory management techniques and tools but to make most of them work, and work well, you need cloud-based inventory management.

Software like DEAR Inventory can track, forecast, analyze, calculate, and control your stock in real-time, from anywhere in the world, regardless of how big or small your business is.

If you’re serious about upgrading, enhancing, and optimizing your inventory management, then DEAR Inventory is the tool for you.

Start your free 14-day trial today

A Simple Guide to the Lean Manufacturing System

Posted on February 9, 2018 by Alla

The Lean manufacturing system is an effective way to reduce waste and boost profits.

Do you want to decrease waste and increase the quality of your products?

How about decreasing your cost of inventory and increasing your profit margins?

You’d probably like to boost your productivity too, right?

These improvements are usually hard to come by in manufacturing.

But companies around the world are reaping these benefits by implementing one proven manufacturing method…

The Lean manufacturing system.

We’ll show you what this system is, the key principles behind it, the major waste reductions you can expect from it, and the essential tools you’ll need to implement it.

By the end, you’ll have a firm understanding of Lean manufacturing and how it can transform your factory into an efficient powerhouse.

What is the Lean Manufacturing System?

The Lean manufacturing system, often referred to as Lean manufacturing, Lean production, or simply “Lean” is a system for maximizing product value for the customer while minimizing waste without sacrificing productivity.

One of the first major pioneers of “Lean thinking” (although he didn’t know it) was Henry Ford who was a major sponsor and promoter of the assembly line.

But Lean manufacturing as we know it today has its roots in the Toyota Production System (TPS), which was created by Taiichi Ohno and Eiji Toyoda in Japan between 1948 and 1975.

Before it was known as TPS, they simply called it just-in-time manufacturing.

There were 3 things the Toyota Production System attempted to prevent:

1. Muda

Muda is the Japanese term for “waste.” Muda is everything in your manufacturing process that creates waste or causes constraints on creating a valuable product.

According to the Lean Enterprise Research Centre (LERC), 60{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of all activities in manufacturing production add no value at all.

According to TPS, there are 8 wastes you should work to eliminate:

Defects – The mistakes that require additional time, resources, and money to fix.
Overproduction – When those who receive the output aren’t ready for it or don’t need it because workers continue to produce more unnecessarily.
Waiting – When work has to stop because someone is overwhelmed, something broke down, you’re waiting for approval or materials, or because you’ve run out of something.
Not utilizing talent – Under-utilizing peoples’ talents, skills, and knowledge (not part of the original TPS wastes, but is increasingly sighted as a waste by current Lean manufacturers).
Transportation – Too much transportation, leading to increased costs, wasted time, and the increased likelihood of product damage and deterioration.
Inventory excess – When there is supply in excess of real customer demand, which masks real production.
Motion waste – Any excess movement, whether by employees or machines, that doesn’t add value to the product, service or process.
Excess processing – Any task that is processed more than required

These 8 wastes can be remembered using the acronym DOWNTIME.

2. Mura

Mura is the Japanese term for “unevenness in operations.” Mura is everything that creates inconsistent and inefficient work flows.

An example of Mura would be if you stocked a truck with fewer pallets than it can hold for one trip and then stocked it with more pallets than it could adequately hold for a second trip – resulting in longer lead times.

3. Muri

Muri is the Japanese term for the “overburdening of people and equipment.” Muri is all tasks or loads that put too much stress on your employees or machines.

Muri can cause employee burnout – as in the case of having too much work to do and not delegating a portion of it to someone else.

Or, Muri can cause the total breakdown of a factory machine – as in the case of running production for too long or with too many products than is allowed by the standards of that machine.

By minimizing or eliminating Muda, Mura, and Muri the proponents of TPS and the Lean manufacturing system believe you can produce the highest-quality products while increasing your revenue and productivity.

We’ll take a look at the tools that help you prevent “unevenness in your operations” and stop “overburdening your people and equipment” in a moment, but first, let’s take a look at how the philosophy of TPS gave way to the 5 cornerstone principles of Lean manufacturing.

What Are the 5 Key Lean Manufacturing Principles?

In 1996, the book Lean thinking was published, forever solidifying a whole new way of manufacturing.

The authors – James P. Womack and Daniel T. Jones – distilled the lessons they learned from observing TPS down to 5 Lean manufacturing principles.

These 5 principles are still at the core of any Lean manufacturing system.

The 5 principles are:

1. Value

The first principle of Lean manufacturing is value, which says a company should deliver the most valuable product to the customer. Value is therefore determined by the customer, not the company or its managers.

2. Value Stream

The second principle of Lean manufacturing is value stream, which says that after you’ve determined the value you’re going to provide your customers, you should map out the steps and processes required to manufacture those valuable products.

In a Lean manufacturing system, you should actually draw out every step of your process, from raw materials to finished product.

The goal is to identify every step that doesn’t create value and find ways to eliminate those steps.

3. Flow

The third principle of Lean manufacturing is flow, which says that after you’ve eliminated most or all of the waste from your system you undergo the process of ensuring all of your value-adding steps flow smoothly without interruptions, delays, or bottlenecks.

4. Pull

The fourth principle of Lean manufacturing is pull, which says that products should be built on a “just-in-time” basis so that materials aren’t stockpiled and customers receive their orders in weeks, instead of months.

5. Perfection

The fifth principle of Lean manufacturing is perfection, which says that you should make Lean thinking and process improvement a core part of your company culture.

Lean is not a static system, it doesn’t work the same for all companies, and managers aren’t the only ones who implement Lean – employees play an active role in making companies Lean, too.

To make the Lean manufacturing system more concrete and less abstract, let’s look at a few tools you’ll need to implement Lean in your business.

What Are the Most Useful and Actionable Lean Manufacturing Tools?

To get rid of Muda, Mura, and Muri there are a variety of tools you’ll need to implement and learn how to use.

Here’s a short list of some of the most important tools in the Lean manufacturing system:

The 5S System

The 5S system is a method of organizing your workplace materials for quicker access and better maintenance. This system is essential for eliminating waste that is produced by poor workstations and tools in poor condition.

The 5 S’s are:

Seiri (Sort) – Remove all unnecessary items for your current production, leaving only what is necessary.
Seiton (Set In Order) – Organize remaining items and label them accordingly.
Seiso (Shine) – Clean and inspect your work area and everything in it every day.
Seiketsu (Standardize) – Write out your standards for the Sort, Set In Order, and Shine steps above.
Shitsuke (Sustain) – Apply the standards you’ve set for your company and make them habits for everyone in your organization.

Plan, Do, Check, Act (PDCA)

PDCA is a 4-step method of continual improvement in your process and products. It applies the scientific method to manufacturing so that you can iterate the best results over the life of your business.

Here is each step:

Plan – Determine the goals for a process and needed changes to achieve them.
Do – Implement the changes.
Check – Evaluate the results in terms of performance.
Act – Standardize and stabilize the change or begin the cycle again, depending on the results.

Heijunka (Production and Demand Leveling)

Heijunka (production and demand leveling) is a technique specifically designed to reduce Mura (unevenness) by producing goods in smaller batches at a constant rate.

This helps reduce lead times and reduce inventory since each product or its variant is manufactured more frequently at a predictable rate.

Kaizen (Continuous Improvement)

Kaizen is the practice of continually observing, identifying, and implementing incremental improvements in the manufacturing process.

It encourages all managers and employees to be involved in the process of manufacturing improvements.

Kaizen ensures that waste will be gradually reduced through the collective talents and knowledge of everyone in the company working together to change the smallest inefficiencies daily.

Kanban (Pull System)

The Kanban (pull system) allows employees to “pull” work into their work station when they’re ready. This prevents Muri (overburdening employees) and allows managers and employees to focus on the right tasks at the right times without wasted effort or time.

How Do You Track Inventory in a Lean Manufacturing System?

Holding inventory is typically seen as a problem in Lean manufacturing. The closer you can get your inventory to zero, the better.

But you still need a way to manage the inventory coming into your warehouse, along with your purchase orders, customer orders, etc.

Since Lean manufacturing requires you to be flexible and fast when orders come through, it’s necessary to have an inventory management system that can respond quickly and fulfill orders as fast as you need them.

You won’t get that from manual spreadsheet inventory management.

But you can get it from cloud-based inventory management.

Find out how below…

Make Lean Manufacturing Easier with DEAR Inventory

DEAR will automate purchase orders to get goods quickly when you need them, track essential KPIs for continual improvement in your processes and workflow, and give you in-depth insight into your production costs for reduced waste and increased productivity. If you’re serious about going Lean, DEAR will make the process that much smoother.

Start your free 14-day trial of DEAR Inventory today!

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5 Demand Forecasting Best Practices for Smarter Predictions and Better Results

Posted on January 26, 2018 by

Better understand what’s coming with these demand forecasting best practices.

Demand forecasting is a tough job with a lot of errors.

The people who attempt to tell the future of your customers’ buying decisions are usually wrong.

But sometimes they’re right.

And in those instances, they’ve saved you from buying too much or buying too little – leading to obsolete stock, and from buying too little – leading to stockouts.

Their job is necessary but very difficult.

To help you do the job of forecasting demand better, we’ll go over a few demand forecasting best practices so you can increase your chances of forecasting demand correctly – increasing profit margins and decreasing costs of inventory.

Before we do that, let’s define demand forecasting.

What is Demand Forecasting?

Demand forecasting is a process of predicting what your customers will buy, how much they’ll buy, and when they’ll buy it.

You can use informal methods (i.e. guessing) or quantitative methods, such as analyzing past sales data.

From production planning to inventory management to entering a new market, demand forecasting will help you make better decisions for managing and growing your business.

But to make demand forecasting as accurate as possible, you’ll need to follow demand forecasting best practices.

Read on to discover these best practices.

Demand Forecasting Best Practices

Demand forecasting is an imprecise science, but that doesn’t mean you can’t improve the process.

Here are a few tips to help you forecast demand effectively:

Create a Repeatable Monthly Process

An increase in demand forecasting accuracy requires a consistent, monthly process that systematically analyzes previous forecasts and compares them to actual market results.

Through this process, you’ll have data on when your predictions were right or wrong, and what market demand has been.

Then, you can sort those “deviations” (when you were right or wrong) from highest to lowest and evaluate the top 20{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} to determine why you were wrong and how to be right next time.

By following a monthly process and evaluating your past successes and failures, you can minimize future errors.

Determine What to Measure and How Often

You can measure virtually anything in your business, but to accurately forecast demand, you should focus on the most relevant data points.

Here are a few data points you should consider measuring:

Competitors sales data
POS data
Amount of obsolete stock
Frequency of stockouts
Shipments
Orders

Feel free to add any more relevant data points to that list. Then, depending on your industry and rate of inventory turnover, choose whether to measure those data points on a weekly or monthly basis.

Integrate Data From All of Your Sales Channels

If you have multiple sales channels – like an omnichannel ecommerce strategy – then you should aggregate all the data from every sales channel for each individual product into a single data set.

Once you’ve done this for all of your SKUs, you’ll be able to see which channels offer the highest ROI for each product, and what your shipping and order requirements will be – helping you make smarter decisions.

Measure Forecast Accuracy at the SKU, Location, and Customer Planning Level

According to Gartner, only 17{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of respondents to their study indicated that they forecast demand at the SKU, location, and customer planning level.

This is unfortunate because a primary driver of demand volatility is increased customer requirements.

Mr. Steutermann, the research vice president at Gartner said, “Customer or sales forecast accuracy should be measured for continuous improvement and accountability. The appropriate place to measure for continuous improvement is in the sales and operations planning (S&OP) review process.”

If you measure demand error down to the customer level, you’ll be able to better understand the source of the error – allowing you to improve your process.

Maintain Real-Time, Up-To-Date Data

You can’t accurately forecast demand if you don’t have accurate data.

Demand forecasting best practices revolve around up-to-date inventory data, sales data, raw materials data, finished goods data, etc.

To make smart forecasts, you’re going to need that data as close to real-time as possible so you don’t calculate demand with any missing data points, and so you can continually forecast demand on a weekly or monthly basis with fresh information.

So how can you track your POS, financial, and inventory data all at once within the same platform?

By using a cloud-based inventory management tool that integrates with all of your business apps.

In other words, DEAR Inventory.

Better Demand Forecasting Requires Better Inventory Management

Through real-time insight into your sales orders, stock levels, and past customer demand, DEAR Inventory allows you to track trends and forecast demand using accurate and up-to-date data from all areas of your business. Without this tool, you’ll struggle with spreadsheets and un-integrated apps – leaving you disorganized and without precise metrics. WIth DEAR Inventory, your apps will be integrated into a single platform and all of your data will be automatically calculated and charted for you. That’s why 7,503 small businesses and startups use us to grow their businesses.

Start your free 14-day trial of DEAR Inventory today!

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10 Inventory Management Best Practices for Improving Your Business

Posted on November 11, 2017 by dearsyst

Are you managing your inventory as effectively as possible?

It’s OK if you’re not.

Most businesses have plenty of areas to improve, especially in their warehouses.

But if you don’t begin the process of upgrading and streamlining your business operations now, you’ll easily slip into bad habits, inefficient practices, and a high cost of inventory.

By following inventory management best practices, you’ll run and manage an efficient and effective business and warehouse year after year.

Inventory Management Best Practices

There are many industry-specific inventory management best practices you can follow, but there are also a few general practices that every business can benefit from.

Here are 10 inventory methods and practices that will help you optimize your warehouse processes.

1. Categorize Your Inventory Using ABC Analysis

ABC analysis is a technique for arranging your inventory into a hierarchy of most important to least important items.

Here’s what an ABC analysis would look like in practice:

– A-items are the best-selling, highest priority stock and require regular reordering and constant quality review

– B-items are valuable, medium-priority stock and usually require monthly reordering

– C-items are low-priority stock and are typically carried in high volumes with minimal reordering

Organizing your stock within your warehouse according to how they sell and how much value they bring your business will help you optimize storage space and streamline order fulfillment.

2. Optimize Your Pick and Pack Process

The pick and pack process is a set of procedures and tools that your employees use to fulfill customer orders quickly and efficiently.

Types of pick and pack processes:

– Discrete order picking

– Batch picking

– Wave picking

– Zone picking

Here are 5 ways to optimize the pick and pack process for effective inventory management:

1. Design your warehouse for efficiency by placing your top-selling items nearest the packing station

2. Keep your warehouse well-organized by cleaning every area and removing clutter

3. Implement and program a warehouse management system (WMS) so that the items picked are listed in the order the picker will find them.

4. Double check each order for accurate counting

5. Use barcodes or RFIDs on every piece of inventory for easy counting

3. Establish Your Inventory KPIs

Inventory KPIs measure your performance in a particular area over a specific amount of time toward a certain goal.

They help to eliminate guesswork by giving you clear milestones to hit every week, quarter, or year.

With them, you’ll have the data you need to make smart, strategic decisions for your business.

Here are 6 inventory KPIs you should focus on:

1. Inventory carrying costs

2. Inventory write-off and inventory write-down

3. Rate of inventory turnover

4. Cycle Time

5. Order Status and Tracking

6. Fill Rate

4. Use Batch Tracking

Batch tracking is sometimes referred to as lot tracking, and it’s a process for efficiently tracing goods along the distribution chain using batch numbers.

A “batch” refers to a particular set of goods that were produced together and which used the same materials.

Use an automatic batch tracking system in order to enter information about all the products within your batch – keeping that information at your fingertips if you need to access it quickly, as in the case of a product recall.

5. Use an Accurate Reorder Point Formula

A reorder point formula tells you approximately when you should order more stock – when you’ve reached the lowest amount of inventory you can sustain before you need more.

You can stop being a victim to market spikes and slumps by using a proven, mathematical equation to help you consistently order the right amount of stock each month.

This equation is called a reorder point formula.

Here’s a reorder point formula you can use today:

(Average Daily Unit Sales x Average Lead Time in Days) + Safety Stock = Reorder Point.

6. Carry Safety Stock Inventory

Safety stock inventory is a small, surplus amount of inventory you keep on hand to guard against variability in market demand and lead times.

Without safety stock inventory you could experience:

– Loss of revenue

– Lost customers

– And a loss in market share

What makes safety stock a critical inventory management best practice is that you’ll reap all these benefits by using it:

– Protection against unexpected spikes in demand

– Prevention of stockouts

– Compensation for inaccurate market forecasts

– A buffer for longer-than-expected lead times

7. Optimize Your Inventory Turnover Rates

The rate of inventory turnover is a measurement of the number of times your inventory is sold or used in a given time period, usually per year.

By calculating your rate of inventory turnover, you’ll have a better grasp on the market demand for your products, on the amount of obsolete stock you may be carrying, and what steps you need to take to sell or stock more inventory – depending on your turnover rate.

Here’s a simple formula for calculating your inventory turnover rate:

Cost of Goods Sold (COGS) divided by Average Inventory.

Here are 4 ways to increase your rate of inventory turnover:

1. Experiment with pricing

2. Liquidate obsolete stock

3. Forecast Customer Demand

4. Redistribute your inventory to other warehouses

8. Streamline Your Stocktake

Streamlining your stocktaking process – the steps you take to count inventory – will help you mitigate the possibility of your staff making costly mistakes.

A well-structured stocktaking process will include all the steps required to keep your staff working efficiently to uncover discrepancies and inaccuracies while keeping them engaged and focused.

Here are a couple of ways to streamline your stocktake:

– Schedule your stocktakes to reduce impact on business operations

– Clean and organize your stockroom before performing your stocktake

– Know what stock you’re counting and how you’re counting it

– Open and count absolutely everything – no guesswork allowed

9. Reduce Your Inventory

Most businesses have 20-40{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of their working capital tied up in inventory – so if you’re closer to the 40{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} end, it’s probably time to create an inventory reduction strategy.

The goal is to find your inventory sweet spot – where you have the lowest possible inventory levels without being understocked – in order to maximize growth and profitability for your business.

Here are 3 inventory reduction methods you can follow:

1. Lower lead times by tracking your existing lead times, sharing sales data with your suppliers, and reducing minimum order quantities (MOQs)

2. Eliminate obsolete inventory by reworking or modifying your stock, offering a discount, or dating it for a tax write-off

3. Improve inventory forecasting through real-time tracking and reporting, integrated communication, and large volume inventory management tools

10. Use a Cloud-Based Inventory Management System

One of the best business-changing decisions you can make is to stop using Excel inventory management and start using cloud-based inventory management.

Unlike locally-installed applications, Cloud-based inventory management software allows you to pay for the features you need now and seamlessly upgrade when you need to in the future.

You’ll pay a single, predictable subscription fee for a “package” that best suits your particular feature needs and team size; then, upgrading is just a few clicks away when your business growth justifies a more powerful platform.

On top of stress-free upgrades, cloud software companies work in the background to make sure things continue to run smoothly, and should you need any questions answered or breaks fixed, they’ll have a support team standing by to assist you.

A Bonus Inventory Management Best Practice

Point #10 above is not just a best practice…

It’s the one tool that brings all the other best practices together.

From streamlining your stocktake to optimizing your inventory turnover rates to batch tracking – a cloud-based inventory management software will help you improve every area of your business operations.

At least, that’s what our software will do for your business.

If you’re looking for a robust inventory management solution to upgrade and optimize your inventory processes, you just found it.

Start your free 14-day trial today

Receiving Inventory Made Easy: 6 Best Practices

Posted on November 4, 2017 by

Successfully receiving inventory requires a well defined system and organized environment

Receiving inventory effectively is the first step towards successful warehouse management. If you screw it up, everything else will be screwed up with it.

This is true in any warehouse or industry, from food inventory management to retail inventory management and even online wholesale – receiving sets the tone for the rest of your operations.

By optimizing your inventory receiving processes, you’ll make it easier to meet your inventory KPIs, reduce your cost of inventory, and streamline your stocktake.

We’ll show you 6 ways you can make receiving inventory efficient, fast, and reliable.

6 Tips for Effectively Receiving Inventory

Optimize Your Receiving Space

Many inventory errors – like miscounts – will usually occur first during receiving.

One of the best ways to reduce inventory receiving errors is by appropriately preparing your dock for receiving inventory.

This sounds obvious, but many companies still force their employees to work in cramped, small spaces without the proper tools or organizational processes for successful inventory receiving.

Your dock should be designed for sorting received inventory and preparing them for storage in their designated warehouse location.

Keep Your Receiving Space Clean and Organized

In addition to having enough room for receiving inventory, the dock space should be well-organized and clean for easy access to the received goods.

Make sure clutter is removed, and all previously received inventory has been placed in storage.

Implement Real-Time Inventory Tracking Technology

Tracking your inventory in real-time will help you catch mistakes before they cause damage further down your supply chain – such as miscounts, missing inventory, or incorrect inventory being stocked or shipped.

Upgrading your Excel inventory management system to something more cutting-edge and combining it with barcode scanners and RFID scanners will allow managers and workers to accurately track inventory, check for mistakes, and quickly correct them.

Monitor Quality Control

A quality control manager is an important fail-safe to negligent employees or faulty technology.

Their job is to guarantee receiving and putaway accuracy. They can watch for mistakes, point out problematic procedures, and reduce the instances of inventory damage.

Unload Quickly and Safely

Your objective should always be to unload received inventory safely while also doing it quickly.

If you’re using forklifts, make sure the machines are receiving proper maintenance. The same goes for power pallet trucks.

Be careful when handling heavy loads by hand. You don’t want to risk employee injury or damaged goods.

You should also consider using conveyor belts to make the process of putting received goods away more efficient.

Verify the Goods Received

To avoid the costly mistake of shipping the wrong items or not having enough to satisfy customer demand, you should always check that the inventory received is exactly what you ordered.

Depending on your cargo, these are the things you should verify:

Quantity received
Description of goods
Product code
Condition of goods
Weight of goods
Temperature (for perishable items)
Batch tracking number
Serial code

Making sure everything is right the moment you receive inventory will save you from a lot of headaches later on.

One Tool for Effectively Receiving Inventory

Receiving inventory effectively means 2 things:

Creating a safe, fast, and organized process for handling received inventory
Accurately tracking your goods from the moment they arrive in your warehouse to the time they are shipped to your customer

What you need to accomplish #1 are the right procedures set forth by management and a few standard pieces of equipment.

What you need to accomplish #2 is something many companies still don’t have – a cloud-based inventory management system.

With this kind of system, you’ll be able to automate reordering to avoid stockouts, improve your stocktaking process to avoid counting errors, and easily operate multiple warehouses with various types of goods.

If you want to test this system in your business, we can help.

Make Receiving Inventory and Other Warehouse Processes Uncomplicated

Our cloud-based inventory management system will allow you to know your stock levels in real-time, generate reports for future forecasting, and integrate with the rest of your business apps for painless accounting. From purchasing to receiving to sales, DEAR Inventory will help your business run smoothly.

Start your free 14-day trial of DEAR Inventory today!

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Cross Docking: What It Is, How It Works, and If It’s Right for You

Posted on October 28, 2017 by

Cross docking eliminates the need to hold inventory – improving speed and efficiency.

See if you can answer this question:

What does the U.S. military and Walmart have in common?

Here’s a hint:

They both value efficiency and expediency.

Still don’t know?

Alright, we’ll tell you.

The military and WalMart both used cross docking to improve the effectiveness of their organizations.

They both run operations on a massive scale, and they both look for any tools they can use to streamline their logistics.

Cross docking handles all of that for them.

And it can do the same for your business.

We’ll show you what cross docking is, how it works, and its pros and cons.

By the end, you’ll have a much better grasp on whether or not cross docking is right for your business.

What is Cross Docking?

Cross docking is a system that virtually eliminates the need to hold inventory.

Products are delivered to a warehouse where they are sorted and prepared for shipment immediately – usually being reloaded onto other trucks stationed at the same warehouse.

While cross docking does expedite the shipment process, you shouldn’t skip critical steps like quality control and inventory tracking. It still requires a lot of careful planning and handling.

Which brings us to the next question…

How Does Cross Docking Work?

Cross docking isn’t complicated, but it’s not easy.

It requires military-like precision and perfect organization (it’s no wonder the U.S. military started using it back in the 50’s).

Here’s how it work:

Truckloads arrive at the entrance docks to the warehouse
The goods are unloaded and sorted and loaded into trucks waiting on-site
The newly loaded trucks deliver the goods to the customers

That’s pretty much it.

You can pick and choose what products you want to cross dock and what products you want to handle traditionally.

If you own your warehouse, you’re in complete control.

If you outsource your warehouse and shipping, you can talk to your 3PL provider about implementing cross docking in your business.

Now let’s take a look at the pros and cons so you can decide if cross docking is the best solution for your business.

Pros of Cross Docking

Greater Efficiency

Cross docking is made to be a quick and speedy process for distributing your goods.

The only way to make cross docking work is by simplifying and streamlining your loading and unloading systems to swiftly move goods from one truck to another, which results in faster shipments to your customers – a powerful edge over your competition.

Reduced Warehouse Cost

Cross docking provides a dramatic reduction in your cost of inventory.

There’s virtually no stock that you’re storing for any length of time – everything is transferred from one truck to another, almost immediately.

You might hold a few items while waiting for a truck, but if it’s in your cross docking warehouse, that means it will be leaving just as soon as it arrived.

When you cross dock, you simply receive the products, scan them into your OMS, and then ship them off.

No inventory to worry about becoming obsolete. No reordering. No stockouts. No shrinkage.

Reduced Labor Cost

With cross docking, you no longer have to pick and put away stock.

This equals a major reduction in labor costs. Less work required means fewer workers needed.

Decreased Lead Time

Lead time reduction is a significant benefit to cross docking.

Your products are being moved faster and more efficiently, which means they’re reaching your customers more quickly.

This improves your customer service and reputation for fast delivery times.

Cons of Cross Docking

High-Cost of Precise Organization

Precise organization demands high-quality technology, efficient work processes, and fast workers.

You may be saving money on inventory and warehouse costs, but you’ll have to buy forklifts, pallet trucks, conveyor belts, and anything else required for smooth and speedy operations.

You may also need electronic data interchange (EDI) to streamline the purchasing process and SCM software to track your goods from suppliers to your docks and onto your customers.

And, because multiple deliveries happen throughout a single day, every product has to be unloaded and reloaded within precise time slots. Otherwise, the dock will become congested, leading to potential damage or loss of goods.

Increased Cost of Trucks and Docks

Cross docking relies on a fleet of trucks and other transport carriers.

You’ll need space outside the warehouse to house the trucks if you plan on owning them and not outsourcing them.

Similarly, you’ll still need to purchase docks to implement this system.

Suppliers May Not Be Able to Do Cross Docking

Some suppliers may not be able to handle the tight deadlines that cross docking demands.

There’s very little room for error in both quality of goods and lead time. If you want to make cross docking work, you should have trustworthy and reliable suppliers.

Inefficient for Low-Turnover Businesses

If you’re selling office supplies, for example, and your rate of inventory turnover is relatively low, then you don’t need to invest in cross docking and the tracking technology, transportation carriers, and warehouse space that comes with it.

Cross docking is best used by high turnover businesses in industries like food, medical, and retail fashion.

How to Know if Cross Docking Is Right For You

Cross docking requires efficient organization, streamlined transportation processes, up-to-date technology, high turnover, and low lead time.

If you can handle that, or find a 3PL that can provide it, then cross docking is right for you.

If you can’t handle those things, then perhaps you should stick with a more traditional warehouse approach.

Of course, if you do choose a more traditional approach, you’ll probably need a cloud-based inventory management system along with a few other tools for effectively running your business – in which case, you’ll need DEAR Inventory.

What You Need if You’re Not Cross Docking

If you’re running a traditional warehouse, you’ll need software that can easily manage growing product volumes, streamline your stocktaking process, integrate with critical business apps such as Xero and WooCommerce. Our cloud-based inventory management system will give you real-time insight into your inventory levels, automate reorders, and generate reports for accurate forecasting.

Start your free 14-day trial of DEAR Inventory today!

Try DEAR for Free

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10 Practical Ways to Reduce the Cost of Inventory

Posted on October 7, 2017 by dearsyst

In a competitive market, cutting costs is a smart way to stay one step ahead of everyone else.

So what costs should you cut?

Well, you could hire a 3PL provider to reduce overhead costs, or replace Excel inventory management with a more efficient system to increase your productivity – thereby reducing labor expenses.

The best cuts to make are in areas that already cost you a lot of money.

There’s one area of your business that costs 20-30{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of your total inventory, and you should do everything possible to reduce its impact on your bottom line.

What is it?

Your cost of inventory.

There are many ways to cut the costs of inventory, and we’ll show you 10 ways that you can use today.

Before we do that, let’s define the cost of inventory.

What is the Cost of Inventory?

The cost of inventory is the “carrying cost” of holding and storing inventory over a certain period of time. It’s calculated to determine the amount of profit a business stands to gain. It also helps you determine how much more or less inventory you need to satisfy demand.

Types of inventory costs include:

– Purchasing costs

– Taxes

– Labor costs

– Obsolescence

– Insurance

– Security

– Transportation and handling

If you need help calculating your cost of inventory, you can use this formula.

If your cost of inventory is already higher than it should be, or you know it could be lower, then let’s check out a handful of ways to reduce those costs.

How Do You Reduce the Cost of Inventory?

The cost of inventory can quickly add up, leaving you with little profit and overblown expenses. You can reclaim your cash flow and grow your revenue by applying only 1 or 2 strategies for reducing the cost of inventory.

Here are 10 strategies to choose from, any one of which could help you reach your desired amount of inventory costs.

Avoid Minimum Order Quantities

A minimum order quantity (MOQ) is defined as the smallest amount or number of a product that a company will supply.

MOQs are very common, and they’re used by suppliers and manufacturers to unload more of their inventory on retailers and wholesalers – reducing their cost of inventory but increasing yours.

They might offer you deals to sweeten their MOQ, like “buy 50 widgets and receive 10 free widgets,” but this only adds extra widgets to your inventory you may not be able to sell.

There are a few ways to avoid the burden of MOQs.

If you’re friends with a fellow business owner who needs the same stock as you, pool your cash and buy it together and then split it between yourselves. This can go a long way in reducing your inventory costs.

You could also offer to pay your supplier a little more money for less inventory, enticing them to forego their MOQ policy – which could save you more money in the long run.

Of course, if you can negotiate a deal with your supplier to dismiss MOQs altogether without paying extra, that would be ideal.

Know Your Reorder Point

A reorder point formula will help you determine when you need to order your next shipment of stock.

Knowing your reorder point can ensure you never order too much and risk obsolescence, but never order too little and risk stockouts.

Organize Your Warehouse

An organized warehouse will help you efficiently sort your inventory and quickly pick it later. An unorganized warehouse will increase travel expenses along with the likelihood of misplaced or damaged inventory.

This is especially true in major warehouses where workers are traveling thousands of square feet for a single piece of inventory.

The key to laying out your warehouse is putting your fast-moving items up-front in the staging area. This optimizes your pick, pack, and ship process.

An added bonus is that a well-designed warehouse optimizes your stocktaking process, too.

Get Rid of Obsolete Stock

Holding too much inventory increases the chance that the stock you thought would sell is now taking up valuable space in your warehouse and costing you more money than you paid for it.

The essence of reducing the cost of inventory is inventory reduction.

The less you have, the less your costs will be. And obsolete stock is the most costly inventory you can have.

If you already have a lot of obsolete stock, you can try product bundling to sell more of it, or try discounting them individually.

If you can’t sell them, you may be able to donate your obsolete stock for a tax write-off.

Once you clear away the obsolete stock, you’ll have more room for fast-selling inventory.

Implement a Just-in-Time Inventory System

Just-in-time inventory (JIT) management is a method for keeping almost no inventory in your warehouse at all, but instead, ordering everything you need the moment you need it.

It’s a form of lean manufacturing that would mostly eliminate the cost of inventory.

It requires you to:

– Develop a strong relationship with your supplier

– Find a long-term supplier for each purchased part

– Shorten your production cycle

– Separate your repetitive orders from you one-stop business

– Institute or improve your quality control program

While JIT isn’t for everybody, it’s a proven way to dramatically reduce your inventory costs.

Use Consignment Inventory

Consignment inventory allows you to offload a portion of your inventory to the retailer carrying your inventory.

The catch to this arrangement is that the retailer doesn’t pay for the inventory upfront. Instead, they pay you when they make a sale.

If you’re OK with that, selling on consignment can be an easy way to reduce your cost of inventory.

Reduce Your Lead Time

Lead time reduction is the process of shortening the time it takes to receive a purchase order.

The shorter, the better.

Lead time reduction works to lower your cost of inventory in 2 ways:

1. It allows you to keep less safety stock inventory – which means less obsolete stock in the future

2. It allows you to order less stock more frequently – making it possible to reduce the size and cost of your warehouse

Monitor KPIs

Tracking your inventory KPIs is an essential part of reducing costs in all aspects of your business, not just inventory costs.

The cost of inventory is certainly one major metric to track closely.

But you should also be measuring your write-offs and write-downs, your rate of inventory turnover, your cycle time and fill rate.

By comparing your numbers against your industry’s averages, you can assess how well you’re managing your business and warehouse, and how you can reduce your cost of inventory among many other costs.

Use a Perpetual Inventory System

The debate between periodic vs perpetual inventory is mostly coming to a close as more and more businesses recognize the cost-cutting power of a perpetual inventory system.

Perpetual inventory allows you to track your purchases and sales in real-time, allowing you to automatically order stock when necessary and maintain a healthy level of inventory.

Use Accurate Forecasts

Monitoring your business in real-time not only lets you know when you’re low on stock, it also helps you know your best-selling items, your worst-selling items, and trends in demand.

Forecasting demand through accurate reports allows you to order just enough to satisfy demand throughout the year, for every season.

You can also determine what products you need to discard, what you need more of, and give yourself the opportunity to test new products in the market.

But what SCM software will you need to acquire these in-depth reports?

A Must-Have Tool for Reducing Your Cost of Inventory

A cloud-based inventory management system is the tool you need to lower the cost of inventory.

It will help you know your reorder point, streamline your stocktake, lower your lead time, and deliver accurate metrics for tracking KPIs and forecasting demand.

The better you manage your inventory, the easier it will be to cut its costs.

If you want the tool that lets you manage your inventory from one intuitive interface, from anywhere in the world, whether you have 1 warehouse or 10, we can give it to you.

Start your free 14-day trial today

Lead Time Reduction: Why It’s Important and How to Do It Right

Posted on September 23, 2017 by dearsyst

Are you tired of sitting on your hands, waiting for your products to arrive?

You may need to implement a few lead time reduction strategies.

Lead times vary from industry to industry, but they should still be consistent and relatively short.

If you’re not receiving shipments as quickly as you should, you won’t be able to serve your customers as well as you could – and you’ll lose revenue in the process.

To help you improve your customer service and increase your revenue, we’ll show you why lead time reduction is so important, and give you a few tips you can implement by the end of this post.

Before we get to that, let’s make sure we’re on the same page by defining lead time.

What is Lead Time?

Lead time is the time it takes to process an order and receive the shipment of your products. It’s a critical tool for calculating safety stock inventory, and for applying a correct reorder point formula.

It’s both dependent on your process for taking and placing orders – an Excel inventory management system vs a cloud-based inventory management system – along with how efficient your supplier can prepare and ship your stock.

For example, if you placed an order today, and receive a shipment in 8 days, your lead time for that specific order with that specific supplier is 8 days.

Your lead time will most likely vary for each order, but if you want to know your average lead time, you can use this formula:

The total number of lead times divided by the total number of orders placed.

i.e., if you order stock once a month for 6 months, your total number of orders placed would be 6.

Following this example, let’s assume these were your lead times:

January	8 Days
February	11 Days
March	9 Days
April	6 Days
May	7 Days
June	5 Days

Add up all the lead times (8+11+9+6+7+5) = 46.

Now just use our formula:

The total number of lead times (46) divided by the total number of orders placed (6) = 7.67

7.67 is your average lead time for this example.

Relative to your industry, the faster your lead time, the more efficient your entire supply chain will be – which is just one of a handful of benefits of lead time reduction.

Lead Time Reduction Benefits

The major benefits of reducing lead times are reduced carrying costs, streamlined operations, and improved productivity.

But the list doesn’t end there.

Here are a few more specific benefits of lead time reduction:

– Flexibility during rapid shifts in the market

– The ability to outpace your competitors with faster, more efficient output

– Quicker replenishment of stock to avoid stockouts, lost sales, and lost customers

– Meeting deadlines consistently and easily

– Increases in cash flow because of increased order fulfillment

This isn’t an exhaustive list, but gives you an idea of what you stand to gain if you can make even marginal reductions in your lead time – which we’ll cover in the next section.

Lead Time Reduction Strategies

If you want to reduce your lead time, here are a few strategies to get you started.

1. Create a Lead Time Contract With Every Supplier

You probably have a contract with your current supplier, but have you stipulated your terms and expectations on lead time?

Probably not, and you should.

Any supplier can make bold claims about their lead times, but many won’t live up to the hype.

When you ask your supplier to legally agree to predefined lead times, they may hesitate and become uneasy.

That’s good.

It means they’ll be more realistic in what they can offer you, and will be more likely to push themselves to maintain the agreed upon lead times.

Before this discussion takes place, you should already know your ideal lead time.

Once you’ve got that figured out, here’s what should be in your contract:

– Lead times for each specific order/stock

– The penalty for delayed or late shipments

– The penalty for damaged goods during transportation

– A notice in advance of a shortage of stock, discontinuations, or price changes

2. Order Inventory More Often

Many businesses place large bulk orders once every few weeks. This is predictable, and leaves you with plenty of stock in your warehouse.

However, that stock will quickly increase your carrying costs, and if it’s not sold, will become obsolete and will have to be dramatically discounted or discarded – and you’ll be stuck eating that cost.

Ordering smaller amounts of inventory more often – based on accurate sales data and realistic forecasts – helps you increase your rate of inventory turnover, lowering the overall cost of carrying inventory.

This method is best used by companies trying to implement a just-in-time inventory management solution, but it can also be used by companies who simply don’t want to order more than they need.

3. Share Sales Data With Your Supplier

If you keep detailed records of your sales data, and use these reports to order stock from your supplier, you can share it with them to increase your collaboration.

If they can see your sales data, they can anticipate an incoming order. They may even have your stock ready to be shipped the moment you send your purchase order if your orders are fairly consistent.

Sharing the burden of order quantity gives you the benefit of lower lead times, and gives your supplier the benefit of knowing how to best serve you alongside their other customers.

4. Automate Your Inventory Management

Forecasting demand, generating sales reports, and calculating lead times are much easier to accomplish when you aren’t wasting your time manually entering data and writing purchase orders.

Inventory management software can automate your stocktaking process, optimize your supply chain management, and help you balance your working capital.

Keeping track of purchase orders, stock levels, sales data, and carrying costs is simple and straightforward.

If you want to reduce lead times and streamline your operations, then we have the inventory management solution you need.

Start your free 14-day trial today

Inventory KPI: What It Is and the Most Important KPIs to Measure

Posted on September 16, 2017 by

Inventory KPIs help you understand your business performance so you can make better decisions.

Do you want to know how to grow your business efficiently?

Develop inventory KPIs.

With them, you’ll have the data you need to make smart, strategic decisions for your business.

There are many KPIs you can use to measure your performance, and we’ll cover a few that can help you keep costs low and profits high.

But first, let’s define an inventory KPI.

What is an Inventory KPI?

A Key Performance Indicator (KPI) is a measurement of your performance within a particular area toward a specific goal.

KPIs help to eliminate guesswork by giving you clear milestones to hit every week, quarter, or year.

KPIs can be static:

No new accidents within the last 30 days!

Or, KPIs can be milestones toward a larger goal:

Increase revenue by 25{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} every quarter.

Inventory KPIs can help you maintain your current level of growth, or it can help you scale up your business to the next level.

4 Essential Inventory KPIs

It can be tough deciding on what needs to be measured or what goals need to be met, especially if you’re just beginning to gather this data or you’ve started a new business.

Here are 4 essential inventory KPIs to focus on, whether you’re a new business or not.

Inventory Carrying Costs

Any warehouse that holds inventory has a variety of holding costs, or carrying costs:

Labor
Rent
Utilities
Storage
Security
Theft
Equipment
Etc.

A warehouse manager needs to quantify all of the specific costs in their facility into concrete dollar amounts in order to create an accurate inventory KPI for carrying costs.

Once that inventory KPI is created, you can develop strategies for optimizing your carrying costs:

Work on inventory reduction
Test out Just-in-time inventory (JTI)
Consider using consignment inventory
Calculate an appropriate amount of safety stock inventory
Use an accurate reorder point formula

Inventory Write-Offs and Write-Downs

An inventory write-off describes goods that are no longer valuable and can’t be sold. This could happen if your goods become damaged, stolen, or obsolete in the market.

An inventory write-down describes goods that have diminished in value, but can still be sold for a marginal profit, at cost, or at a minimal loss.

If you have large, recurring write-downs and write-offs, you’re probably suffering from poor inventory management.

Purchasing duplicate inventory, mishandling stock, incorrect calculations can all lead to excessive write-downs and write-offs.

Your KPI in this area will vary depending on your industry, holiday seasons, and size of your company, but you should do everything to keep these numbers as low as possible.

Rate of Inventory Turnover

Your rate of inventory turnover is a key metric to understand if you want to optimize your cash flow, working capital, and inventory costs.

Here is the calculation for rate of inventory turnover:

Cost of Goods Sold (COGS) divided by Average Inventory.

Compare your number to the industry average to know if your inventory turnover KPI is in the correct range.

Pick, Pack, and Ship

Customer satisfaction is the ultimate measure of your business’s performance.

The faster and more efficiently you can deliver what your customer wants, the happier they’ll be, and the more your business will grow.

There are 3 major ways to measure your pick, pack, and ship effectiveness:

Cycle Time
Order Status and Tracking
Fill Rate

Let’s look at each one in more detail.

Cycle Time

Cycle time is the time it takes for you prepare and deliver the goods bought by your customer.

The formula for measuring cycle time is:

The delivery date minus the date the order was placed.

You should measure the cycle time of every order, from retail to wholesale customers.

The smaller your cycle time – meaning the faster you prepare and deliver goods – the better your reputation as a reliable and quick company, which could give you a substantial competitive advantage in your market.

Order Status and Tracking

Order status and tracking is a measurement of the state and place of your goods.

Tracking how your employees handle orders, handle goods, and deliver goods can help you cut down on mistakes, catch thieves, prevent damaged goods from reaching customers, and improve customer service.

Providing customers with tracking information will make your company seem transparent and honest, increasing trust and customer loyalty.

Fill Rate

The item fill rate, also known as the demand satisfaction rate, is how much of the customer’s order you could fulfill using the stock you currently have.

If your customer orders 40 widgets, and you only have 20 on hand, your item fill rate is 50{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3}.

You can increase your item fill rate by improving your customer demand forecasting, and ordering the right amount of stock to fulfill future orders.

The Tool You Need to Achieve Any Inventory KPI

Achieving any inventory KPI requires an accurate stocktaking process, real-time inventory reports, and the ability to manage multiple warehouses simultaneously.

You’re going to have a hard time reaching your goals without a system that delivers reliable data, tracks and records all of your inventory coming and going, and can scale alongside your growing business.

If you’re looking for a tool that can do all of this for you and help you meet your inventory KPIs with ease, then we have the cloud-based inventory management software you need.

Reaching Your Inventory KPIs Just Got a Little Easier

Reduce your carrying costs with up-to-the-minute inventory reports for smarter inventory strategies, reduce your write-offs and write-downs with precise forecasts for stock needs, improve your inventory turnover with ecommerce integration for increased sales, and optimize your pick, pack, and ship through real-time inventory tracking.

Start your free 14-day trial of DEAR Inventory today!

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4 Reasons Why Batch Tracking Is Crucial for Quality Control

Posted on September 2, 2017 by

Batch tracking will help you maintain high-quality goods

Do you have a traceability system in place that minimizes accounting errors?

Can you verify the history and location of a set of goods in case of a product recall?

Are you aware of which of your products are close to expiring and which aren’t?

If you don’t have a system that can deliver the answers to these questions immediately, or worse, if you don’t have a system that can answer these questions at all, then you need a batch tracking system.

To help you streamline your supply chain and improve your relationships with your customers and suppliers, we’ll help you understand what batch tracking is, why it’s so beneficial, and how you can implement it in your business today.

What is Batch Tracking?

Batch tracking is sometimes referred to as lot tracking, and it’s a process for efficiently tracing goods along the distribution chain using batch numbers.

A “batch” refers to a particular set of goods that were produced together and which used the same materials.

For example, a batch of milk is a set of individual containers of milk that used the same ingredients and has the same expiration date because they were produced together, at the same time.

From raw materials to finished goods, batch tracking allows you to see where your goods came from, where they went, how much was shipped, and when they expire if they have an expiration date.

What are the Benefits of Batch Tracking?

Almost every business uses batch tracking because it offers numerous benefits.

Here are just a few:

Easy and Fast Recall

iSeeCars analyzed new vehicle sales data and recall data from the National Highway Transportation Safety Administration (NHTSA) from January 1985 through September 2016.

They found that the industry average of car recalls was 1,115 per every 1,000 cars sold.

Almost every car manufacturer had recalls, but here’s why being able to recall your products quickly is so important:

In a study conducted by The Relational Capital Group and reported on by The Motley Fool, 87{cb377218d5687e54e8ee9149518f87201a393a7c1db5e8076e9d750029ec0dc3} of survey respondents said they’d be “more likely to purchase and remain loyal to a company or brand that handles a product recall honorably and responsibly, even though they clearly made mistakes that led to a safety or quality problem.”

Which means, consumers understand that recalls happen, but if you do a poor job recalling the product, then you’ll be chastised by your customers.

So, if you’re a car manufacturer, you would want to make sure that you proactively recall any defective vehicle and publicly or privately apologize and do everything possible to appease your customers.

Regardless of what business you’re in, if you want to be able to recall defective products quickly and easily, then you’ll need a batch tracking system that can give you the detailed information you need to identify every defective product within the batch so you can easily trace them down and retrieve them.

Streamlined Expiry Tracking

Quality control is critical if you’re a food wholesaler.

One of the most important factors for maintaining a high-quality food product is knowing the expiration date for every product you sell, and making sure your customers know this information as well.

Batch tracking allows you to automatically know the expiration date of each product and gives you the power to develop a stronger quality control system in the case of any issues like a product recall.

Improved Relationships with Suppliers

Batch tracking software allows you insight into the quality of your finished goods by tracking the raw materials your suppliers are providing you.

This gives you the ability to identify your best and worst suppliers, which gives you greater control over who you’ll purchase your material from.

Fewer Accounting Errors from Manual Tracking

A manual batch tracking system is extremely time-consuming and error-prone.

It’s very easy to enter incorrect data, omit data, misinterpret data, or misplace your data.

An automatic batch tracking system allows you to enter information that is generated across all products within your batch and puts that information at your fingertips if you need to access it quickly, as in the case of a product recall.

How Can You Start Batch Tracking Today?

The best way to start batch tracking is with a cloud-based inventory management system.

This will allow you to assign batch numbers, expiration dates, and serial numbers to your finished products.

But it will also allow you to track the purchase orders and sales of your batches for easy accounting.

And, because this inventory management system is cloud-based, you can track your batches from anywhere in the world.

If you want to do batch tracking efficiently, then consider using DEAR’s cloud-based inventory management system.

The Inventory Management System that Makes Batch Tracking Easy

Effective batch tracking is just one of the many features of our cloud-based inventory management system. You’ll also be able to create product categories, export product data across all your ecommerce stores automatically, operate multiple locations, streamline your stocktake, and generate real-time inventory reports. Everything you need to optimize your inventory management and batch tracking is right at your fingertips with our system.

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