Inventory Management Guide

Chapter 17. How to Improve Inventory Management?

There are many ways to improve inventory management. Taking steps to improve inventory management will increase efficiency and prevent problems later.

Welcome to Chapter 17 of our inventory management guide. This chapter will look into ways to improve the inventory management process.

It may be that you’ve just started managing inventory, or you’re running your own business, and it’s getting harder to handle.

Either way, you may encounter many problems because of poor inventory management, but identifying where problems lie can be elusive.

However, you can do plenty of things to recognize what’s holding you back and help you improve inventory management.

Is this topic too advanced for you? If yes, head back to the inventory management guide homepage.

How Do You Solve Poor Inventory Management?

It’s an age-old question that’s frustrated inventory managers for decades. Some sources say up to 75% want to improve inventory management practices.

However, there’s no direct way to solve poor inventory management because it depends on what could be causing the problems in your warehouse.

Solving poor inventory management starts with measuring things, such as your KPIs and metrics. (Head back to Chapter 9 for more on inventory management KPIs and metrics.)

If you don’t have a way to measure performance in a warehouse, it will be much harder to gauge how a problem can be solved or how big a problem it is.

However, some inventory management problems will be evident without KPIs or metrics. For example, if there is no logical order to where products are stored, this will clearly need to be changed.

Companies that started from the ground up and have grown quickly may initially not measure their performance and make most of their judgments about improvements based on what they see is not working.

While this is not bad, data will help you become more precise.

Aside from relying on hard data, you should ask for honest feedback from the people who work with your inventory.

Find out what common problems they run into. Specifically, look into what problems make their jobs more complicated and increase the likelihood of mistakes.

Now we’ve covered that, here are five ways to start improving inventory management in your business.

1. Emphasize the Importance of Inventory Management

This is always the first step. Perhaps you are new in a role as an inventory manager and start somewhere where there are almost no rules or little understanding of inventory management concepts.

Your first challenge will be to explain to your staff and upper management that inventory management concepts will improve the work.

Proper inventory management will save them time and energy, but most importantly, prevent mistakes, improve the inventory management process, and make the workplace safer and more secure.

Not understanding the importance of inventory management is a big problem. Supposedly, up to 24% of small businesses keep track of inventory with pen and paper, and approximately 7% don’t track inventory at all.

This is often a result of a lack of experience and training. You may need to set up the inventory management process and train staff to follow it if there has never been one.

2. Recognize That Not All SKUs Are Equal

It may seem strange to say this, but don’t treat all SKUs equally. Some will make your company more money than others and constantly need replenishment.

Instead, you should organize SKUs by which leaves the warehouse the fastest. You may need to reorganize your warehouse space to make these SKUs easier to reach.

You shouldn’t forget that warehouse space costs money. Supposedly, the average cost of warehouse space in the US is $5.08 per square foot. You should ensure you’re using it in the best way possible.

Furthermore, you should prioritize reordering these products. If you have to choose between better-selling products and products that don’t sell well, choose the ones that sell better!

However, this doesn’t mean you should neglect your slower-moving SKUs. The opposite is true; you need a strategy for dealing with them, too, before they become obsolete. 

Lastly, identify common problems that you may encounter with SKUs. For example, some products expire quicker than others or must be placed in certain conditions to be maintained.

There are several ways inventory managers can reduce expired inventory. Two great ones are FIFO and FEFO.

FIFO (‘First In, First Out’) prioritizes shipping the oldest stock first (stock that has been at the warehouse the longest), while FEFO (‘First Expires, First Out’) ensures that the earliest-expiring products are shipped first.

Furthermore, if a product keeps getting returned for a particular reason, you can check other SKUs with the same LOT code.

LOT codes are used to track products throughout the manufacturing process. Often, products will arrive together and have the same LOT code.

If multiple products with the same LOT code are getting returned for the same reason, it may be the case that they are all defective and need to be returned to the supplier.

3. Understand Your Supply Chain and Work with Suppliers

Understanding how your suppliers produce the goods you sell, including how long it takes them to produce them, can help you with your expectations and inform reordering decisions.

By understanding your supply chain, you will know how much time you’ll need for a batch to arrive and learn to spot potential problems that can impact products reaching you.

On top of that, boosting your relationships with suppliers can help enormously as you can recognize each other’s requirements and how to best meet them, which can streamline the inventory process.

For inventory managers, a good relationship with suppliers can mean setting expectations for how orders are dealt with on arrival, how often you need replenishment, and what order size works best for you. They can even negotiate a deal for order quantities.

It is recommended that you create a ‘Supplier Approved List’ (SAL), a list of suppliers your company has vetted and approved regarding product quality, reliability, compliance, and any other standards you may have.

These are the suppliers that you know you can trust and can continue to work with. It also helps because you will have backup suppliers you trust if there are problems.

4. Ensure You’re Using the Right Tech and Equipment

We’re not just talking about software (we’ve told you enough times already!). You can enormously improve inventory management with the right technology and equipment.

On a basic level, do you have the right shelves set up? Do you need forklifts? Small businesses can be held back by not investing in essential equipment that makes handling inventory easier.

Consider if you need to invest in the following:

  • Pallet jacks.
  • Warehouse lighting.
  • Label printers.
  • Conveyor systems.
  • Docking equipment.
  • Carts and hand trucks.
  • Packaging equipment.
  • Security systems.

Some of the above you may already have; others might not apply to your business needs. Either way, ensure you are not missing out on equipment that could save you time.

Elsewhere, in the last decade, mobile devices have become the standard for warehouse workers to locate and scan products.

As early as 2012, a study found that 85% of warehouse, distribution, and logistics companies planned to start using mobile devices.

Our reliance on such warehouse inventory management technologies will likely continue, and it is an excellent opportunity to improve inventory management.

Sellercloud’s Skustack is an example of such technology.

5. Plan for the Future

You won’t be able to improve inventory management in one fatal swoop. Many of the things mentioned above might not be feasible right away due to workload, financial constraints, lack of backing from management, or a lack of employees.

That’s why planning is vital. You should set up points when your company can adopt new tech and processes based on when they will be necessary.

This will not be easy, and coming up with a solid plan you can stick to is often more challenging than people may think.

Bear in mind that planning for the future is a never-ending process. Improvements never stop, so you should never think that you’re done.

The tech that you adopt will one day be outdated. New features will become the industry standard while others will become obsolete.

However, this should not be a threat to your plans. Your plans should be flexible and change with the times.

How to Improve Inventory Accuracy?

Improving inventory accuracy starts with using a perpetual inventory system. Many things we discussed in our previous chapters help improve inventory accuracy.

Here are a few of the best ways to improve inventory accuracy that we touched on in the different chapters of our inventory management guide.

  • Software—Inventory management software is king in the modern warehouse. Supposedly, up to 25% of retailers are investing in new warehouse inventory management software.
  • Barcode scanning—Scanning and instantly identifying and modifying product statuses is a massive help. (Surprisingly, some services still do not offer a barcode inventory system!) 
  • Automation—Mostly touted as a way to speed up processes, automation also lowers errors (head back to Chapter 16 for more).
  • Track inventory—In Chapter 7, we discussed how inventory tracking systems can boost things such as reporting and enhancing your accuracy.
  • Cycle counts—Though not a technical solution, conducting cycle counts is essential to ensure inventory accuracy.

Lastly, consider hiring consultants to help if you’re struggling to improve inventory accuracy. No one expects one person to turn around a whole warehouse.

How Do You Reduce Dead Stock Inventory?

Dead stock (also known as ‘obsolete stock’) can be a symptom of poor inventory management. It is an enormous problem and one of the biggest you will want to work towards reducing.

Dead stock can no longer be sold because customers are no longer interested. It takes up space that could be used by products that sell—that costs your company money.

Bear in mind that many businesses struggle with shifting dead stock. Being aware of it early on and working towards reducing the possibility of it building up can be advantageous.

As a general practice, never have too much inventory on hand. Not only is it a big responsibility, but it’s risky and increases the likelihood of dead stock.

You should also forecast regularly to understand the demand for your products. This way, you will see which products are declining in demand and order more appropriate quantities.

If you find yourself in a situation where you have dead stock, you can offer it at a heavy discount or as part of a kit or bundle. Some wholesale buyers may take it off your hands, often at your loss (but this will free up vital space).

In some circumstances, you may be able to ask suppliers to repurchase it from you. Again, don’t expect to make a profit.

Key Points From Chapter 17

You’re now an expert at improving inventory management. Remember these key points.

  • 75% of inventory managers want to improve inventory management practices—it’s a common and continuous challenge.
  • Improving inventory management starts with measuring KPIs and metrics to understand the challenges and their severity. However, some will be obvious immediately.
  • Solve poor inventory management by emphasizing its importance, recognizing not all SKUs are equal, understanding the supply chain, ensuring you’re using the right tech, and planning for the future.
  • You can improve inventory accuracy using the right software, barcode scanning, adopting automation, tracking inventory, and carrying out cycle counts.
  • Dead stock is a symptom of poor inventory management. There are several ways to prevent and reduce dead stock in the warehouse.

The next chapter in our inventory management is Chapter 18—our penultimate chapter. We will summarize everything we have learned in our inventory management guide.

Chapter 16. How to Automate Inventory Management?
Chapter 18. Everything to Know About Inventory Management