How to Streamline Inventory Management with Automation

Garrett Saunders

Garrett SaundersNational Account Manager at Chetu, Inc.

Tuesday, October 8, 2019

Inventory management is critical for managing the operations of any business that sells goods. Knowing your current inventory of products and anticipating which items will be in demand allows businesses to store their products more effectively.

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In addition, inventory controls help manage cash flow more accurately so businesses don’t overspend on purchasing items that they already have in excess. This is especially important for perishable items with a short shelf life.

On the other hand, it’s vital for businesses to have sufficient inventory to keep up with customer demand. Extended shipping delays and backorders can drive customers away from a business that isn’t able to meet their expectations. An accessible and accurate custom inventory system prevents these issues and eases the administrative burdens of keeping track of the location, amount, dimensions, purchase history and shelf life of inventory.

Set PAR levels

Periodic Automatic Replacement (PAR) levels are the minimum amount of each item that must be on hand so that a business has sufficient stock to sell to customers. This number also includes a reserve or safety supply so that a business is prepared to respond to an unanticipated spike in demand for the short term. Businesses want to be sure they have enough products on hand to sell to customers without running out, but they don’t want to keep more in stock than necessary.

When an item gets down to a certain quantity in stock, a business can automatically replace it by generating a purchase order. You can set a PAR level for each item in stock by calculating the inventory turnover rate (how long it takes on average to sell each item). It’s best to work with weekly levels to account for enough shipping and delivery time for items to be restocked.

Using a cloud-based inventory management software system allows for real-time tracking of items so that you have more accurate data on the turnover time for each item. Setting accurate PAR levels then means that you can quickly reorder items as needed. You can even customize your default order settings for the amount and specifications of each item that you regularly order.

Keep track of First-In First-Out (FIFO)

Businesses need to know the cost of goods sold so that they can deduct that inventory expense from their taxes. The FIFO method is used in accounting to track the value of a company's inventory at a certain time. It’s based on the assumption that the first items stocked in inventory were the first items to be purchased by customers.

Having a reliable software program for inventory management means that you can immediately tell how long a specific item has been in stock and you can use the order dates for each item to get an estimate of what you paid for the inventory. This estimate is important because a business can lose out on tax deductions by not taking into account all of the inventory that has been purchased.

Avoid dead stock

Overstocking is referred to as dead stock because the excess inventory that a business hangs onto for too long simply won’t sell. It’s a major cash flow burden on the business and it’s nearly impossible to recuperate the initial cost of buying the items and storage costs of keeping them while they don’t sell.

Dead stock accumulates when businesses don’t accurately estimate the market demand for a particular item. Additionally, businesses may base their purchasing decisions on inaccurate or outdated inventory data. On the other hand, some businesses might not have a clear understanding of the actual cost associated with overstocking.

Solid inventory controls prevent overstocking by compiling updated data on sales trends and price changes. Real-time access to inventory data for all of the items you keep in stock gives businesses useful insights on whether they’re in danger of overstocking an item.

Create a contingency plan

Contingency planning is essentially for businesses to be flexible in responding to changes in market trends, customer demands or supply shortages. One of the pitfalls of inventory management for many businesses is relying on one person or a small department to manually manage inventory or make purchasing decisions. Relying on the experience of a single individual is risky because they might not be available when the business needs to respond to an inventory issue quickly.

Employee turnover, changes in management or organizational restructuring require that a business be able to access current information on inventory, purchasing, and sales figures. Replacing manual processes with an inventory software system that constantly tracks product supply levels and collects historical data on selling trends for each product avoids relying on one employee's institutional knowledge.

Provide accurate forecasting

Cash flow is a constant concern for businesses of all sizes. It’s crucial for businesses to always keeps an eye on how to optimize cash flow without compromising inventory stock levels. This is especially challenging when a business is looking to offer new products.

Accurate inventory forecasting is much easier when using an inventory control system. Software programs will gather comprehensive data on overall market trends for your company's products, which helps inform sales projections for new products.

Inventory management is easier with automation

Inventory management is much more efficient with automation. Keeping real-time data on stock levels, shelf life, order history and the location of your inventory will help reduce produce waste, maximize inventory cost tax deductions, avoid product shortages and anticipate customer demand for new products.

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