Inventory control is a critical function for businesses spanning every industry. Without effective inventory control methods, the supply chain suffers, you’re not able to meet customer needs adequately, and ultimately, your company’s bottom line will reflect these inadequacies.
But choosing the right method for inventory control and developing effective policies to ensure that processes are followed, improving the accuracy of your inventory control methods, and collecting accurate data to understand how to use that data to inform other areas of the business are concerns with no simple, across-the-board solutions.
That’s why evaluating your company’s current business scenario to identify key needs and choose systems and develop processes that will best accommodate these unique needs is often a necessary first step for companies who are selecting an inventory control system for the first time. It’s also a good idea for companies to conduct these audits periodically to ensure that current systems and processes are adequate considering growth or change that has occurred within the organization.
To help companies choose or develop methodologies that are well-suited to business requirements, we’ve compiled a list of 51 expert tips on inventory control methods, ranging from information to help you choose the right inventory control framework or methodology to understanding your company’s unique business needs and creating and enforcing effective inventory control policies. To browse tips in a specific section, use the links below to navigate to each category.
1. The Min-Max inventory control method helps you define how much inventory you should maintain for specific items. “After a careful examination of your inventory needs, you set two lines – one at the top and one at the bottom of how much of each product you must keep on hand. When you reach the bottom line, you order enough of that product so you won’t go above the top line. As long as you’re somewhere in the middle, you’re okay.
“Pros: This method is simple and it makes the task of balancing inventory fairly straightforward.
“Cons: Its simplicity could lead to trouble because you might order too many products or run out before they arrive.” – Robert Lockard, 4 Inventory Control Methods You Need to Know, Inventory System Software; Twitter: @Fishbowl
2. The ABC method is one of the most commonly used inventory control methods in some industries. “This is one of the common methods used across retail industry and it is at times coupled with other methods for better control on inventory. This is more of an inventory classification technique where in products are classified based on the sales contribution and importance of the same in their assortment plan.
“A- Category products will be the maximum grocers in sales and flagship products with higher margin. Usually top 20% of the products in the assortment contributing to 80% of the total sales are classified under A category where tight control on inventory is required to ensure no loss in sales. 20% of products contributing to 80% of sales is known as 80-20 Rule or Pareto principle
“C-Category products are bottom of the line contributing less to sales. These items are marginally important for the business and are kept only for the sole purpose of customer requirement.
“B-Category products are important to the retailer but are less important compared to A Category products.” – Suresh Ram, Types of Inventory Control Systems, Discuss Retail in Detail
3. Vendor-Managed Inventory is an option for some industries. “As the name implies, vendor-managed inventory (VMI) is inventory that is managed by the vendor (supplier). And while there can be more to it than this, at a minimum this means the vendor determines when to replenish and how much to replenish.
“Vendor-managed inventory is nothing new; in fact it’s been around a long time and is far more common than you may think. If you ever worked in a restaurant, you would have seen the “bread guy” show up every day or so, check your inventory (physically look at your breads, buns, etc.), then go out to his truck and stock you up. In a barbershop, many of the hair products your barber (yeah I’m old school, I go to a barber) sells or uses are also managed by the supplier. In this case, it’s probably the sales rep for that product that actually “manages” the inventory, and he may restock the barbershop from the trunk of his car. At the old independent hardware store, items like nuts, bolts, washers, o-rings, etc. were often managed by the vendor. In larger businesses, you may have your shipping cartons, office supplies, or cleaning/maintenance supplies managed by the vendor.” – Dave Piasecki, Vendor-Managed Inventory (VMI): What is it and When Does It Make Sense to Use It, InventoryOps.com
4. The Just In Time inventory control method is considered a risky practice, but it does reduce the volume of inventory a business keeps on-hand, which can reduce overhead costs. “The Just In Time (JIT) method works to lessen the volume of inventory that a business has on hand. It is considered a risky technique because you only purchase inventory a few days before it is needed for distribution or sale so that the items arrive just in time for use.
“JIT helps organizations save on inventory holding costs by keeping stock levels low, and eliminates situations where deadstock sit on shelves for months on end. You need to conduct thorough research into customer buying habits, seasonal demand, and source for reliable suppliers and channels of transportation before implementing JIT into your business operations to minimize risks and screw ups.” – Inventory Management Techniques, Trade Gecko; Twitter: @tradegecko
5. Multi-period inventory methods have two main variations: fixed order quantity and fixed time period ordering. “A multi period inventory model can have two variations. Fixed order quantity systems are where orders are placed for a fixed amount each time they are placed. The placement of an order is done when an event occurs – such as reaching a minimum stock level. The second variation is fixed time period models where orders are placed at specific times, for example when there is a monthly review of stock levels. The amount of the order will depend on the amount of inventory that is needed.
“The main differences between these models are that in a fixed order quantity model there must be continual monitoring to ensure that orders are placed when inventory levels are reduced to the appropriate level. Levels of inventory in a fixed time period model are only checked at the time that an order is due to be placed. In the fixed order quantity model inventory levels are usually higher and this system tends to be used for more expensive, important items. It also requires more time to maintain because inventory models need to be constantly measured.
“Fixed order quantity models are used in very stable situations where product demand is constant, product lead time is known and reliable, price does not vary, ordering costs are constant and all orders for the product will be filled.” – Peter Carr, Week 7: Inventory Management, BE 603 Operations and Supply Chain Management (offered by the Conrad Centre for Business Entrepreneurship and Technology at the University of Waterloo); Twitter: @UWaterloo
6. The most effective inventory control methods may vary from company to company, and even for individual item categories. “Inventory control methods vary from company to company, commodity to commodity and SKU to SKU. The inventory control method that works best for slow-moving items might not work as well for fast-moving items. A company might have 1 million different SKUs and use only five different inventory control methods. One thing to remember — there is no perfect method to manage inventory. A holy grail or magic formula that results in perfect inventory levels does not exist. A company can only seek to find the best method that results in reduced cost and increased service levels.” – Kenneth Hamlett, Methods for Inventory Control, Chron.com; Twitter: @HoustonChron
7. While there is not necessarily a one-size-fits-all inventory control methodology, developing a clear inventory control system and associated policies is essential for the success of any company. “To understand the various inventory management techniques it is crucial to know why it is important.
8. Look for key features to evaluate systems that allow you to manage your company’s inventory digitally. “No, we don’t mean using Excel to track your inventory. We’re referring to an Inventory Management solution that works for your business. Not all programs out there will work for everyone so spend some time evaluating the features and functions to ensure it meets your needs as well as your business needs. Here are some great tips on evaluating an inventory management system.
Inventory Control Basics
9. Your inventory control system should contain several key elements. “Every parts operation needs an inventory control system of some sort, which should incorporate the following key elements:
10. Make a plan first, then execute. “Inventory management is a continuous, concentrated effort – and a process that shouldn’t be handled solely at the operations level. A successful inventory plan should also involve your marketing, catalog, ecommerce, and merchandising departments.
“By managing your inventory against a master promotional calendar, everyone wins: your purchasing team understands when and how much product to buy, your fulfillment provider knows when to prepare additional warehouse space, and your contact center staff can anticipate increased call volume.
“Add previous years’ sales forecasts to your inventory calendar to be even more prepared for seasonal spikes in demand.” – Steve Warren, 4 Tips for Effective Inventory Management, MultiChannel Merchant; Twitter: @mcmerchant
11. Identify critical spares for maintenance inventory and ensure that they’re in stock at all times. “Have you identified your critical spares? Critical spares = Long Lead time (4-6 weeks) X Critical to Production Equipment X High Part Cost. These parts are like life insurance. You hope you never need them, but they better be on the shelf if you do.” – Improving Maintenance Inventory Control, Marshall Institute; Twitter: @Marshall_Inst
12. Shipments should be closely reviewed, as receiving inventory is a key point of loss. “A key point of loss is at the time of receiving inventory. Closely reviewing packing slips to catalog shipments is necessary for inventory management. You will also want to carefully inspect items before the shipping company leaves in case you need to file a damage claim. Each shipment should be closely checked, and this should include counting products and comparing them to the packing slip. Variances need to be noted, and if need be, a claim will have to be filed with the vendor responsible for the shipment.” – Manage Your Inventory, Kabbage; Twitter: @KabbageInc
13. Assign the right inventory management team with the task of owning your organization’s inventory control processes. “Choose the people responsible for ‘owning’ the entire inventory process—including how product is organized and received. Look for trustworthy individuals who are analytical in nature and not intimidated by a little math.” – 7 Tips to Improve Your Operation’s Inventory and Reduce Food Waste, Gordon Food Service; Twitter: @GFSDelivers
14. Like inventory should have a single storage location, with the exception of an overstock location if necessary. “Bring like inventory together into a single storage location. The same part shouldn’t be in several storage areas unless physical size dictates a limitation. In that case, keep available quantities to a minimum and move remainder to a location that isn’t part of the easily accessible storage (overstock location).” – Warehouse Management Tips for Physical Count Inventory, riteSoft
15. Successful inventory control is finding the right balance between the costs of inventory and the benefits of inventory. “Successful inventory management involves balancing the costs of inventory with the benefits of inventory. Many small business owners fail to appreciate fully the true costs of carrying inventory, which include not only direct costs of storage, insurance and taxes, but also the cost of money tied up in inventory. This fine line between keeping too much inventory and not enough is not the manager’s only concern. Others include:
“The degree of success in addressing these concerns is easier to gauge for some than for others. For example, computing the inventory turnover ratio is a simple measure of managerial performance. This value gives a rough guideline by which managers can set goals and evaluate performance, but it must be realized that the turnover rate varies with the function of inventory, the type of business and how the ratio is calculated (whether on sales or cost of goods sold). Average inventory turnover ratios for individual industries can be obtained from trade associations.” – Inventory Management – Successful Inventory Management, IPSCMI
16. Inventory gets a bad rap, but it’s a critical function for business spanning nearly every industry. “Let’s face it: Inventory gets a bad reputation, but it’s the essential ingredient for companies to support their customer requirements. They must have what their target customers need in order to keep their business and beat the competition to the punch. This last fact is why so many companies keep very slow moving or “dead” inventory on the shelves.
“The inventory requirements at a given company vary based on the customer support requirements and the type of business being a manufacturer, retailer, wholesale distributor, or e-commerce company. Even within these general channel categories, there will be significant differences within inventory management in pharmaceuticals/drug, food, apparel, general merchandise, automotive, electronics, building materials, and other types of businesses.
“While the industry and service levels influence inventory practices, there are general business reasons why some companies have excess inventory, such as supply chain and vendor risk and uncertainty; variable customer demand and forecast accuracy; seasonality leveling; lead-time issues; price hedging; risk of losing loyal customers; and marketing driving sales with new merchandise.” – Norm Saenz, managing director at St. Onge; Don Derewecki, a senior consultant at St. Onge, Inventory Management 101: Time to revisit the principles, Logistics Management; Twitter: @LogisticsMgmt
17. Bad inventory control is actually a symptom of a much deeper issue, such as a bad maintenance or facility management plan. “Downtime: It is a word every manager in the maintenance and reliability industry dreads. In the best situations, it means a loss of profit. In the worst, it means a loss of your job. While not all issues that cause downtime are completely avoidable, it helps to know the ones that are. In this blog post, we are going to examine some sure-fire ways to banish downtime with a few inventory-control tips.
“You may be asking yourself what inventory control has to do with whether or not a shop experiences downtime, to which I would answer, ‘a lot.’ Bad inventory control is a symptom of a much deeper issue, namely a bad maintenance and/or facility management plan.
“One of the key steps to any maintenance management system is knowing every piece of equipment under your charge. This includes information about the machinery as well, including how old each unit is, who the vendor is, the vendor contact information, life expectancy of the product, suggested maintenance procedures… the list goes on and on.
“By knowing this vital information, you can develop a sound maintenance plan to ensure that your equipment continues functioning properly, thus helping to avoid a possible future downtime scenario.” – Lisa Richards, Banish Downtime with These Inventory Control Tips, MapCon; Twitter: @MAPCONtech
18. Inventory control, despite its importance, is still a function that remains outdated in some settings, such as healthcare providers’ offices. “Many offices have no inventory control system and, therefore, experience supply shortages that necessitate last-minute ordering at premium prices. Most practices can’t afford, or don’t have the volume to support, digital-scanner control systems. The cost of physician inefficiency due to missing items often is higher than the cost of the supplies.
“The following manual system is a simple, easy-to-use one that puts control of inventory in the hands of one person while still allowing anyone in the office to use supplies when needed without first having to check with someone else. Sub-systems for stocking each examination room or work station also can be created if desired.
“You can change suppliers, buying cycles, order amounts, and bundle size anytime as needed. Just alter the tags to reflect the changes.” – Keith Borglum, Q&A: Tips to save money on supplies and control inventory, Modern Medicine Network; Twitter: @MedEconomics
19. Small businesses should not ignore the need for a solid inventory control system. When considering methods and software applications, instead of opting for the least expensive or free application, choose a system that can grow with your business. “You may be thinking that since your business is small, you don’t need to spend lots of time and money keeping track of my inventory. With the size of your business, you can just keep an eye on it yourself without needing to set up a special system.
“This line of thinking could get you into trouble. Inventory management involves more than just counting your inventory. A good inventory management system also encompasses tracking inventory as it is shipped to customers. From proper inventory management you can learn what products are selling well and which aren’t so you know what to stock more of and which items to consider putting on sale to move them. If you are able to predict what customers want, you can ensure that you have enough inventory on hand, branch out and offer similar products, reduce the amount of product that doesn’t sell well and possibly improve margins by raising prices. All of this can not only drive revenue, but reduce costs and improve margins.
“Small business inventory management software can also help with cash management. By understanding which products sell and using this to control your purchasing behavior to just-in-time, you can reduce the cash conversion cycle for your business. Equally, by eliminating products and skus that don’t sell, you can reduce the amount of cash tied up in long cash conversion products. All of this is critical to small businesses. The question is not ‘do I need an inventory management system’ but ‘how much money and time should I invest’. Then you also need to consider growth. Switching systems later can be very disruptive and painful. While free inventory management software is available for your small business, that may not be the best long term strategy. Better to buy a service or product that can grow with you.” – Jegath, Tips for Small Business Owners: Driving Revenue through Small Business Inventory Management Software, Ordoro Blog; Twitter: @ordoro
20. For maintenance organizations, it’s easy to fall into the trap of thinking that the right CMMS will also solve the company’s inventory control challenges. However, maintenance software only automates and simplifies processes that are already effective. “Effective inventory management is one of the best ways to accelerate the ROI of your CMMS implementation. Tracking inventory, however, can be a complex and daunting task. Organizations have to track a variety of equipment, as well as the spare parts and tools used to properly maintain that equipment.
“For a long time organizations had to do inventory management manually. The difficulty of tracking inventory in different quantities and with varying characteristics gets magnified when manual procedures are used. An inventory control module can simplify inventory management through better record keeping and automated reporting. Unfortunately, inventory management modules are often underused.
“Many maintenance managers mistakenly assume that inventory management comes as an automatic function of maintenance management systems, but maintenance software can only simplify and automate a process that’s already effective.” – Carol Owens, Tips to Simplify Inventory Management with Maintenance Control Software, Business-Software.com; Twitter: @BiznessSoftware
21. No matter what inventory systems, methods, and policies you employ, always have a backup plan in place to protect your company’s valuable data. “Protect all of your hard work. Even the most high-tech, organized inventory system can be catastrophically derailed unless you have a backup plan in place. What if, for instance, your state-of-the-art computer is stolen or a fire damages your facility, relegating your written records to a pile of ashes? Avoid this disastrous scenario by also backing up your system elsewhere, perhaps even to a removable thumb drive.” – Stephanie Howard, Tips For Taking Control of Your Managers, Suppliers and Inventory, Groovv; Twitter: @GroovvSolutions
Data Collection and Analysis Tips for Effective Inventory Control
22. Find a way to evaluate what products are moving and what products are not. “One of the first ways to use your inventory information is to examine by product what is moving and what isn’t. Doing this on an ongoing basis will help identify products that may need to be discounted in order to replace them with faster selling items or in order to generate some cash. Studying your inventory, along with your sales patterns, should help you see trends in the sale of high-margin vs. low-margin items. You may also discover overlapping product lines that aren’t productive.” – Sageworks, 6 Tips to Improve Inventory Management, Funding Gates; Twitter: @FundingGates
23. Measurement is essential. You cannot control what you don’t measure. “Metrics are essential to a well-run supply chain. Metrics for their own sake, however, are worthless. The purpose of a metric is to drive change when the variable you are measuring trends in the wrong direction.
“A number of different metrics are useful for inventory management. Days supply by product and location based upon forecast is an excellent metric at the SKU level.
“When analyzing roll-up numbers for a product line, warehouse, or any other higher level, however, days supply is misleading because the lows cancel the highs and hide imbalances. At the higher level, inventory velocity is a much better measure of inventory health.
“No metric is useful, however, unless it is acted upon. Constant vigilance and early response to imbalances are the keys to ensuring best-practice inventory management.” – Jane B. Lee, 8 Common-Sense Rules for Inventory Management, Inbound Logistics; Twitter: @ILMagazine
24. Calculate your total costs. “It goes without saying that getting your inventory levels right is imperative, but what about the right quantities of your highest-performing brands and products? Maximizing sales of the goods with the most attractive margins can sometimes be tricky because of quantity discounts, special orders, and changes in wholesale prices (that you might not be aware of).
“It’s why looking carefully at total costs lets you know which products have the best margin, rather than just sell the fastest.
“Why calculate total costs?
25. Track both inventory and sales data. “The old saying ‘you can’t improve what you can’t measure’ exemplifies the backbone of a sound inventory management system. If you haven’t yet started keeping thorough records, there’s no time like the present. As you create this records system, consider how it will accommodate the most vital inventory components:
“You likely already have a system for recording transactions that includes sales orders (we hope). But most entrepreneurs haven’t taken the time to complete bills of materials, and for good reason: They are time-consuming. But, in the end, the benefits far outweigh the costs.
“Bills of materials are considerably easier to create for a retail storefront than for, say, a restaurant. In the food service industry, one sales order can relate to multiple bills of materials which, in turn, can require a few primary components and many others in small amounts. If you fall into the latter camp, determine the quantities of various invoice items needed for the appropriate bills of materials.” – Jesse Butts, How to Establish a Practical Inventory Management System, BizFilings; Twitter: @Toolkit
26. Check all stock inwards to account for errors in packing and other issues that may be missed if you simply assume the numbers match up. “The first focus should always be to check what actually gets delivered against what you have ordered from your supplier. It is so easy to assume that the numbers match up, but from talking to our customers we note that a good 1% to 2% of stock orders are incorrectly packed. If you just assume that you have the correct numbers of products when you add the inventory to your shelves you are liable to be short stocked when you receive a customer order. Another issue is that you might actually have more stock than you need and you won’t know when to reduce prices to move it or order more when you don’t need to.” – Stock Control and Inventory Management Tips, Cloud Fulfillment; Twitter: @CloudFulfillment
27. Centralize your data. “Regardless of how your inventory is set up physically, from a tracking perspective it should all be consolidated. This is especially the case if you have a web store and a physical one. Otherwise, you’ll appear disorganized and the process of buying could be confusing. As a bonus, being able to order online and either pick up or return in-store can seriously boost sales.” – 5 Tips for Streamlining Your Inventory Control Process, Blue Chip Inventory Service Int’l.; Twitter: @rodwalsh98
28. Inventory trends inform marketing plans. “Accurate inventory management incorporates what you know about customer and product demand from the past and present to (ideally) predict your best course of action in the future. A point of sale system can help quantify product level demand in tandem with recurring sales patterns, including those that fluctuate with some predictability (like seasonality, lifestyle occasions that impact your target audience and perhaps, local events).
“Optimize the value of such information by coupling your inventory management and marketing promotions to work together. For example, such insights can reveal potential opportunities to leverage quantity-based pricing vendors may offer, while at the same time empowering you to offset times of lower demand with promotions or ‘packaged’ deals that strategically drive sales, while moving the inventory that you acquired at a low cost.” – Kristen Gramigna, Keep Track of Your Precious Cargo: Tips for Inventory Management, Business.com; Twitter: @businessdotcom
29. Automate tracking with barcode labels and/or inventory management applications. “Another possible inventory management error is failure to track what you receive and what you sell. This can lead to losses, especially if you’re paying for products that are never showing up at your business, so some sort of tracking system is imperative. Automating the process with a barcode system and/or inventory management application is the smoothest way to handle this; note that the BizXpert app offers some useful inventory management features.
“Cycle counts are also recommended. Every day, pick a handful of items and count how many you have, comparing the number against what you have in your records. Pay special attention to big-selling and hot ticket items.” – Three Inventory Management Errors (And How to Avoid Them), BizXpert; Twitter: @BizxpertApp
30. For many industries, including healthcare, inventory tends to follow the 80/20 rule. “Hospital inventory, like many things in life, often follows an 80/20 rule. 80% of the value of your inventory will be composed of just 20% of your actual product and most of those valuable items – whether they be assets, med-surg supplies, consignments or medication – fall into the departments of OR or Pharmacy. Plan your inventory efforts accordingly. Spend 80% of your time and energy optimizing the ordering and organization of the equipment, supplies and pharmaceutical products in these categories.” – Top 10 Tips for Hospital Inventory Management, Reliant Inventory Services
31. Inventory budgeting is a critical component of effective inventory control. “Many organizations have an annual inventory budget and they are usually prepared well in advance before inventory is procured. Budgets should include the total cost of ownership to keep inventory on hand during that year’s account period. This includes materials cost, fixed operational costs, carrying costs, logistics costs, redistribution costs and additional miscellaneous costs that contribute to the total costs of ownership.” – Dan Dowling, 6 Inventory Control Techniques for Stock Optimization, EazyStock Blog; Twitter: @EazyStock
32. When considering new inventory control software applications, be sure the cost is commensurate with functionality. “As you might expect, there are a lot of different types of inventory planning and control software out there. One of the biggest differences between many new solutions is whether they take advantage of cloud computing, or if they remain as locally installed software packages. For example, according to Inc.com, many providers of inventory control systems offer exclusively online, and full-service hybrid, versions of their software. The exclusively online versions are typically more limited in their functionality, while the full-service versions come with a higher price tag, but offer a greater number of services.” – Pat VanPutte, Inventory Control Systems Protect Your Bottom Line, NSA Computer Exchange Corp.; Twitter: @NSAComputerExch
Knowing Your Inventory and Your Company’s Needs
33. Don’t get caught with too much inventory. “Afraid of being caught short, it’s easy to spend too much on inventory, which can eat up working capital and erode profits. Warehousing isn’t free, of course, and inventory that sits on a shelf is subject to damage, depreciation, and even obsolescence. Old inventory can be very hard to move. Your options aren’t great,’ says Paul Huppertz, a logistics expert with The Progress Group, a supply chain consulting company based in Atlanta. ‘You may end up marking it down, selling to discounters, or shipping it to overseas liquidators.’
“To fix it: Start with some decent projections of how much supply you’ll need and when you’ll need it. The best gauge is what you’ve sold in the past. If you’ve sold 100 items per month for the past 12 months, chances are that you’ll need 100 this month. Then there’s seasonality: Do you usually see a fourth quarter spike with holiday sales? Or, if you’re in the home and garden business, do you see more activity in the spring selling season? ‘You can also identify and quantify less obvious patterns such as month-end spikes,’ says Huppertz.” – Lisa Girard, Five Steps to Painless Inventory Management, Entrepreneur; Twitter: @lisagjournalist
34. You should be able to break down your inventory into three basic categories: safety, replenishment, and excess or obsolete stock. “This breakdown makes it easier to make sound decisions about appropriate levels for each of these three areas. It helps determine the minimum safety stock needed to provide an insurance policy against supply chain problems either from manufacturing glitches or distribution uncertainties so that customers get what they ordered. It’s useful for pinpointing the amount of inventory required to replenish deliveries every two weeks. And it helps companies find ways to avoid a backlog of excess or obsolete inventory.” – Pratap Mukharji, Sam Israelit, Francois Faelli, Thierry Catfolis and Raymond Tsang, Ten ways to improve inventory management, Bain & Company; Twitter: @BainAlerts
35. Even with the most sophisticated automated data collection systems, a regular inventory audit is still valuable for keeping precise tabs on your inventory. “Make sure to regularly, on a monthly basis if possible, audit your inventory to sufficiently keep track of all of your stock. Even with all of the great technology available to us, we need to keep track of items and orders. This will help you to understand what is really selling and what is dead stock. Getting rid of dead stock is key to running an efficient warehouse operation. All you have to do is create a list of every product you have on your shelves – simple really.” – 5 Helpful Tips for Easy Inventory Control, Personal Finance and Business Advisor
36. Don’t be afraid to re-evaluate your company’s inventory control needs. “At what point do you realize that your approach to inventory management needs to change?
37. A CMMS is the backbone of effective inventory management and control for facilities. “The CMMS is the backbone of inventory management and control. Besides the typical modules —work orders, equipment records, material stores inventory, project management, standard reports, work-scheduling databases — the CMMS query system can yield summary inventory reports that supervisors and managers need.
“When each work-order status indicates the material is available, the work order is ready to go, and the maintenance planner can schedule it with the confidence that a lack of materials will not delay the job. Managers also can monitor the trend of work orders awaiting material.
“With real-time inventory control, the need for physical inventory decreases, especially if entries are accurate and complete. Out-of-stock trends can alert the stores supervisor to specific items that need expediting before they lead to equipment downtime. Managers also can monitor inventory-valuation trends efficiently.” – Thomas A. Westerkamp, CMMS: Backbone of Inventory Management and Control, FacilitiesNet; Twitter: @Maintenance_Mag
38. Conduct a business assessment. “Assess business functions and processes in their current environment. Start with an understanding of the current order-to-delivery (OTD) process. Devising a future state while identifying gaps and improvement opportunities will set the momentum to accelerate change acceptance among the cross-functional teams involved, including sourcing, planning, commercial operations, stockroom and manufacturing. Key activities in this stage should include:
39. Understand your sales cycle and customer buying patterns to gain a better understanding of your customers. Effective inventory control is essential for customer service. “Inventory control is a customer service issue. Successful inventory management involves striking that balance between not having enough inventories on hand and having too much. Either you have the cost of excess inventory or the cost of a lost sale. It is painfully obvious which is lesser evil of the two.
“In order to conduct proper inventory control, you must have the ability to look at past sales and predict future demand. When forecasting your demand, you must learn from your past mistakes. Previous marketing promotions must be tracked closely to measure the impact of sales increases. Understanding your sales cycle and customer buying patterns will help you gain a greater understanding of your customers.” – James Ellis of Central Oregon Community College, Inventory Control: An Essential Element of Good Customer Service, Cascade Business News; Twitter: @cascadebusnews
40. Effective inventory control can reduce harmful consequences from mishaps such as the use of outdated or expired materials, such as those used in pharmacy preparations. “Large pharmacies, especially compounding pharmacies, often produce “stores of unwanted chemicals” used in the preparation of prescriptions. These chemicals are known as “bulk compounding chemicals,” and include substances such as tar, phenol and sulfur. Between the chemicals used to prepare prescriptions, pharmacies must also keep track of the compounds and drug products that are ingredients of the final medications. Given the many materials and types of chemicals used and produced, it is especially important for managers to use chemical inventory management systems to organize and keep track of the chemicals that enter and leave a facility.
“As mentioned above, the NECC used expired ingredients in their medications, which likely exposed a number of patients to adverse effects. Additionally, chemicals were not properly labeled. Using a chemical inventory management system prevents such oversight and in all likelihood, NECC lacked such a system. For compounding pharmacies and other such companies which would greatly benefit from tracking chemical supplies, let’s examine three ways a chemical inventory management system can help improve life for both employees and customers:
“What occurred at the NECC proved to be a fatal flaw for the company. Though the presence of a chemical management system may not have prevented the outbreak, if such a system were in place and used in conjunction with a digital notebook capable of recording the results of sterility tests, for example, the likelihood that such a mistake could occur would have been much less.” – Lilian N., Eliminating Harmful Substances Before They Reach Patients with Chemical Inventory Management, Biovia; Twitter: @3dsBIOVIA
41. If your company must maintain inventory for equipment repairs, consider parts that can be used in a number of applications. “If you store clamps and couplings that can be used in a number of applications, you won’t need to keep as many in stock and space is reduced. Full transition couplings that fit pipes of varying types and sizes within your water or wastewater infrastructure save space and help you stay prepared for multiple scenarios. There are also products that have the versatility to either join or repair pipes.” – David Wheat, Simple Steps For Inventory Control, Municipal Sewer & Water; Twitter: @MSWmagazine
Creating Effective Inventory Control Policies
42. Creating clear policies and processes allows your company’s inventory control function to run like a well-oiled machine. “It can be an uphill battle keeping your company’s inventory effectively organized and managed. There are some subtle nuances that are easy to overlook but should ultimately not be ignored. Compass Technologies, which provides retail point-of-sale, wholesale and distribution services to its customers, offers some helpful advice for inventory and organization management.
43. All items should have an SKU, barcode, and product specifications. “Similar to a driver’s license, every product needs to have a unique ID number known as a SKU (Stock Keeping Unit). A SKU is vital for internal use as there will be instances where a particular product needs to be found quickly and having an SKU will make it easy to find. Additionally, having a SKU is imperative because another company could have a product named “Black Pants” exactly like and resellers are dealing with multiple vendors, thus creating a need to differentiate between similar products.
“Second, when working with other companies such as resellers whether it be an independent e-commerce store, a brick and mortar store or a big-box chain, a universal barcode/UPC number will be expected. A UPC number is another form of a SKU, but instead it comes in the form of a barcode which can be scanned and identified through a live database powered by GS1. Be cautious not to purchase UPC numbers from anywhere but GS1 or a valid reseller. The whole point of a barcode is to be scanned and looked up via a database, so having a barcode that brings up a different product from another company causes a lot of confusion and could potentially lose customers.
“Finally, it is always good to have a system for listing all your products specifications. Those specifications should have at least the following:
44. Dedicated inventory control managers or other administrators should be tasked with handling the administrative tasks associated with inventory control, and these roles should be separate from accounting or finance departments. “There are many administrative tasks associated with stock control. Depending on the size and complexity of your business, they may be done as part of an administrator’s duties, or by a dedicated stock controller.
“For security reasons, it’s good practice to have different staff responsible for finance and stock.
“Typical paperwork to be processed includes:
“Stock can tie up a large slice of your business capital, so accurate information about stock levels and values is essential for your company’s accounting.
“Figures should be checked systematically, either through a regular audit of stock – stocktaking – or an ongoing program of checking stock – rolling inventory.
“If the figures don’t add up, you need to investigate as there could be stock security problems or a failure in the system.
“Health and safety aspects of stock control are related to the nature of the stock itself. Issues such as where and how items are stored, how they are moved and who moves them might be significant – depending on what they are.
“You might have hazardous materials on your premises, goods that deteriorate with time or items that are very heavy or awkward to move.” – Stock Control and Inventory, Info Entrepreneurs; Twitter: @chambremontreal
45. Make inventory accuracy a higher priority than order fulfillment. “Raising the priority of accurate inventory is perhaps the most important, yet most difficult, step in inventory accuracy. Many inventory problems arise from pushing a transaction through the system with the intent of going back and fixing the numbers later. In the rush of other emergencies, however, we often forget to go back and correct the numbers in the system. This leads to missed production entries, negative lines of inventory, and a whole mess of other problems. Only by putting systems in place that will prevent an employee from moving forward without the necessary system transaction can you effectively keep accurate records of inventory.
“One example of success that my team recently implemented was changing our accounting system so that it will not process any shipment that contains more inventory than we have on hand. For example, if we’re trying to ship 15 of an item, but our system says we only have 5 in stock, then an alert will pop up and force us to fix the problem before moving forward. This helps us address problems before the product goes out the door. By forcing us to address missed production entries before the product leaves, our modified system helped us eliminate most of our major inventory issues.” – Alex Fuller, 10 Tips to Make Physical Inventory Counts Less Painful and More Accurate, Supply Chain Cowboy
46. Inventory management software is a valuable tool and superior to outdated spreadsheet methods. “Using the right tools for the job is a must. Many companies choose spreadsheets for inventory management software because it seems like the familiar and easy thing to do. Unfortunately, spreadsheets come with built-in risks: it’s far too easy to lose changes or accidentally delete a spreadsheet file. It’s also difficult for multiple people to synchronize their spreadsheets, which further increases the risk for error. Find a low-cost but effective software for managing your inventory, such as Peachtree or QuickBooks. Most organizations overlook these options for inventory management because they’re best known for their accounting features. However, they offer invaluable inventory management software features and a central database to streamline inventory operations, increase accuracy, and minimize the possibility of error.” – 5 Supply Chain Management Inventory Tips, Women’s Distributor Services (WDS); Twitter: @WDSJennifer
47. Optimizing inventory control requires continuous improvement. “One of the biggest things to note when striving to improve inventory management is that there is no safe place. Maintaining the right balance of inventory levels, properly organizing your warehouse for maximal efficiency, and ensuring that you have complete insight into your processes will go a long way in helping you improve effective inventory management however when you think you’ve succeeded, the worst thing you can do it sit back and relax. Taking a critical approach to operations, including inventory management, is fundamental to maintaining your competitive edge. Be sure to monitor costs as well as performance; if you see that inventory carrying costs are rising, maybe your forecasting isn’t as accurate as it could bet. If customer satisfaction falls, take a look at your order history. If you’re sending out incomplete orders, or items aren’t being sent to customers in a timely manner, dig a little bit deeper. By building the philosophy of continuous improvement into your organization and your inventory management strategy, you will be able to achieve greater efficiency and profitability.” – 3 Tips for Improved Inventory Management, NavX; Twitter: @NAVX_software
48. Cycle counts can be a useful alternative to stock-wide physical inventory counts. “Cycle-counts have become SOP with a growing number of mid-sized firms since more business software packages now provide this functionality. The benefits of employing a cycle-count regimen over periodic stock-wide physical counts are great. Cycle-counts are less disruptive to operations, offer greater specificity in determining what items should be counted and generally force greater discipline into the organization’s inventory management.” – Tips for Improved Inventory Control: Part 5/8, TBS Automation Systems
49. Take steps to maximize both your profit and resources by involving team members and distributors in key processes. “There are many best practices that any Supply Chain Manager should follow, but a few of the strategies that tend to ensure maximizing not only profits but resources needed include:
50. Follow best practices for conducting physical inventory counts. “Inventory accuracy is cornerstone to success. It is a bedrock topic to improving service levels, reducing lead times, increasing margins, improving efficiencies, reducing inventory levels….and the list goes on. Although I recommend implementing cycle counting programs as a way to replace physical inventories, there are times when a physical inventory is a must. Thus, it is worth thinking about a few tips to successfully complete a physical inventory.
51. Give your employees tools that make them more efficient, which leads to more accurate inventory control. “Other than employees, inventory is a company’s largest asset. Reducing inventory levels and increasing inventory turns can lead to immediate savings on a company’s bottom line. Also, it’s important to consider the “landed cost” of your products. While your supplier may have a book price with bulk discounts, consider how much the product actually will cost you from the time you purchase it to the time it lands at your warehouse dock. Cargo fees, customs, and transportation add up quickly and can shrink profit margins. To navigate these challenges, consider these five tips:
“In times like these, it is key to stay positive but manage realistically, cutting short-term costs that you can afford to cut. The important thing is to understand which assets are mission-critical and which ones need to be shed. Properly managing the No. 1 or No. 2 asset of your company will allow you to cut expenses and increase sales.” – Bill Harrison, Top Five Tips to Rescue Your Business with Inventory Management, AllBusiness; Twitter: @AllBusiness_com
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