The Ultimate Guide to Inventory Management (Part 2): Inventory Replenishment
One of the biggest goals for inventory managers is to streamline inventory activity.
Sometimes, however, inventory errors get in your way—and having them occur occasionally seems inevitable. Inventory errors cost businesses in both time and money. Your customer reviews and loyalty take a negative hit as well.
Valuable time is spent searching for misplaced product or correcting products that were erroneously shipped to customers. Lost, stale or excess inventory is also costly. You can expect increased errors when you rely mainly on manual processes.
Stay on top of inventory replenishment
When you don’t know how much inventory you have on hand, where the inventory is located, what inventory is on purchase or sales order, what inventory is aging, or how long it will take to arrive, it is difficult to make accurate replenishment decisions.
Without these insights, you can get caught with too much or not enough inventory. You might move inventory to the wrong locations or even lose revenue due to unfulfilled customer orders. The impacts can be significant.
Don’t panic—there are techniques to mitigate these impacts and even prevent many errors in the first place.
Develop a replenishment strategy
Sometimes, warehouse managers and planners don’t see eye-to-eye about how to use space for inventory and raw materials. Inventory replenishment plans fall through if warehouse managers can’t provide the necessary space. Excess stock is largely responsible for taking up this valuable warehouse space.
In the strategy stage of inventory management, make sure you formulate effective inventory-level strategies. All parties involved — most importantly, your long-term customers and suppliers — should be aware of your strictest targets. These strategies should be tailored to fit the needs of your inventory and supply chain.
For truly effective inventory replenishment, set the following parameters:
- Lead time — How long does it take for your supplier to deliver your orders to your door?
- Minimum order — What’s the minimum quantity that the supplier allows you to order?
- Min-max levels — What stock levels will trigger auto-replenishment?
- FIFO and LIFO layers — Which do products do you offload first: your oldest (First-in, First-out) or your newest (Last-in, First-out)?
- Safety stock — To prevent stock-outs, how much extra inventory will you order beyond expected demand?
- Drop shipping — How much inventory do you ship directly to the customer from the supplier?
- Just-in-time – Which inventory do you receive only at the time you need it?
- Non-stocked inventory – Which inventory is only ordered when required to fulfill an order?
With well-calculated, educated and diligent inventory replenishment processes, you can more effectively manage your inventory. The right software can help you program these calculations to perform automatically based on actual statistics of your inventory movement. That’s how you ensure inventory is available and in the right place at the right time.
By pairing an ERP that specializes in inventory management with the right Warehouse Management System (WMS), you can significantly improve these situations. With the controlled procedure and task automation these tools provide, these solutions will benefit your bottom line.
Talk to us if you’re ready to reduce inventory errors while delivering end-user efficiency, productivity and improved customer satisfaction.
This blog is the second in a series on Inventory Management. To find out more about the features you need for your ERP or Warehouse Management System, talk to us.