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Inventory management methods, get a grip on your flow of goods

Nov 16, 2021

Inventory costs are skyrocketing while the necessary turnover isn’t happening. How do you ensure this bottleneck is resolved as quickly…

Inventory costs are skyrocketing while the necessary turnover isn’t happening. How do you ensure this bottleneck is resolved as quickly as possible? By using the right inventory management method. Inventory management methods ensure that you get an even better grip on the flow of goods in your stock. This way, you can better determine which product groups should be sold first and how you can organize stock management even more efficiently. But which methods are out there and how do you choose the best one for your webshop? Read on below.

What are inventory management methods

Inventory can be managed in different ways. With the help of stock management methods, you determine how the goods flow of your stock runs. Whichever method you choose, it is important that you look at the type of product you’re selling. For example, you may have to deal with products with expiration dates. The ultimate goal is to keep as few products in stock as possible because the more you have in stock, the more costs this will entail. Think of costs such as storage and purchasing. Inventory management methods ensure that these costs are kept as low as possible. By prioritizing certain products in your stock based on data, you avoid incurring higher costs.

Why are inventory management methods used?

Stock management is the art of keeping costs as low as possible. We can already hear you asking: “How can you keep inventory costs as low as possible?” To answer this question, it is important to know what inventory costs consist of.

What does inventory costs consist of?

Inventory costs consist of interest, space and risk costs. Purchasing new inventory stock is also seen as an investment. You can take out a loan for this, but if you don’t sell stock, you suffer interest loss and pay high interest costs. Another cost item is space, which is another cost to be able to store stock. Think of the rent of the warehouse, associated energy costs, depreciation of warehouse racks, and the transport of products to the warehouse. The longer you keep stock in store, the more risk this entails. A product’s value may decrease over time, quality may decline, shrinkage may occur, or market demand may change. These amounts are seen as risk costs.

By keeping these costs low, you work on a healthy stock value. The stock value indicates the extent to which you have efficient stock management. By using stock management methods, you create tools to make smart choices which help you prioritize when purchasing certain product groups. Having an unnecessary amount of money in stock is at the expense of your cash management.

“Better product availability with less stock”

Niels Veltman: “We are already seeing the effects of Optiply, which gives confidence and motivation to continue this upward trend. In addition, it is in line with our strategic choices, as we still believe the most important factor is our service levels. It is great that we now have an objective tool to measure and optimize this”

What are the consequences if you do not use inventory management methods

There are consequences of not using inventory management methods. One consequence is the high cost. Another consequence is the use of a wrong purchasing strategy. Products that stay in stock for longer run the risk of not being sold at all. With the help of analyzes and methods, it becomes easier to better predict market demand and adjust stock accordingly. By using inventory management methods, you prevent miscommunication between your company and your supplier because you know what stock you want to buy. If you do not use stock management methods efficiently—or at all—the chance of overstock is greater and you run the risk of stocking up on the wrong products that barely sell.

What inventory management methods are there

Now that you know that inventory management methods determine the incoming and outgoing flow of goods, would you like to know which stock management methods are available and which methods are the best to use? Keep on reading for four methods that can determine the flow of goods:

ABC categorization

Are you dealing with limited space in your warehouse? Rearrange it with the ABC analysis which provides a better grip on turnover rate by categorizing runners and soft runners. Products that run are placed in category A, items that run moderately are placed in category B and soft runners are placed in category C. Once you have insight into how your products sell, your sales strategy can also be adjusted accordingly. Travelbags has managed to increase its service levels with Optiply. You can also use dynamic inventory optimization software that updates this for you in real-time.

First in, First out (FIFO)

With the FIFO method, you sell products in the order they were purchased, so the products that are purchased first are also the first to be sold. This method is great for products with an expiration date, such as foods or chemical products. The FIFO method can also lend itself to products that are quickly outdated. Spare parts for smartphones or the car industry, for example, quickly become obsolete.

Last in, First out (LIFO)

At LIFO, the last purchased products are the first to go out. This method works well for products that have a high turnover rate. Do you expect certain product groups to increase in value over time? These products should also use the LIFO method. This will increase the prices of products, which means more profit for your shop.

Just in time (JIT)

With the JIT method, you make agreements with the supplier when a product threatens to run out of stock. The advantage is that you are working sustainably. You only buy when you need something which prevents you from wasting unnecessary material. In addition, you also ensure that your costs remain low. A disadvantage of the JIT method is that you cannot always deliver on time, because a product still has to be ordered or produced, thus not being able to meet customer demand.

What is the importance of a good method?

Inventory management methods ensure you have a good grip on stock. You create an overview of what goods you have at any given moment and where they are stored in the warehouse. This allows you to handle your flow of goods more efficiently, prevent obsolete stock and work on a better relationship with suppliers by good communication. Optiply ensures that you can clearly see the flow of products based on stock management methods. With inventory management methods you book more turnover, maximise profit, have more customer satisfaction and, most importantly, keep your loyal customers.

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