Effective Inventory Management Techniques For Small Businesses
Inventory management is amongst the most important processes involved in any product based business. So regardless of whether you are selling a product or temporarily renting it, you need an effective and robust inventory management system to streamline your business and maximize your profits. However, many small and start-up companies cannot afford such expensive systems; here are few economical inventory management techniques for such companies:
Just-in-Time or JIT management technique: This is one of the most commonly used inventory management techniques used by small retailers. Here, the retailer does not buy the product from the vendor until and unless he has a customer. When the customer approaches the vendor and submits a sales order, the retailer purchases the product from the wholesale vendor or the manufacturer and supplies it to the customer.
Minimal stock level: This warehouse management system involves keeping only a minimum amount of products in the stock, and replenishing it only when the products in the inventory fall below a particular level. If the minimum stock level is set too high, many products might remain unsold; on the contrary, if the level is set too low the cost of shipping fresh products for replenishment might increase substantially. Thus, it is important to maintain an optimum minimum level of stock in the inventory. This is the reason minimum stock level is never static; the seller keeps adjusting it according to the market environment. This technique is most effective for companies that make seasonal sales or deal in perishable goods.
ABC analysis technique: It is an inventory categorization method in which the products are categorized according to their price, i.e. A is the most valued product and C is the least valued product. The company pays special focus on A-category items; they are kept at higher security than other low valued product and the seller tries to push customers to drive more sales from this category. Conversely, C receives the least attention and is less aggressively promoted by the marketers. B-category products sit in the middle, between the high-valued and low-valued products and are pursued by the marketers in the same fashion, more aggressively than the C-category products, but less aggressively than the A-category products.
First In First Out Technique: Also known by its acronym FIFO, this technique is used by retailers around the globe for perishable goods like pharmaceutical drugs and food items. In this method, the seller tries to sell off the old products first, so that the older stock does not expire sitting in the stock. This is similar to a queue where the new products are added behind the older ones, which form the front of the queue and are sold off first.
Last In, First Out technique: As its name suggests, the LIFO warehouse management system is the opposite of the FIFO (First in First out) technique where the goods that enter the inventory the last are sold of the earliest. Such materials do not have any shelf life and are stored in piles, so new stock is piled over the older ones. Hence, whenever a sale is made, newer stock from the top of the piles is sold off first.