Simple, yet effective ways to achieve inventory control

Inventory control can be defined as the coordination and continuous supervision of the supply, storage, distribution, and recording of inventory to maintain quantities, adequate for current needs of the customer without tying up excessive working capital in inventory. The goal of inventory control is to generate the maximum profit from the least amount of inventory investment without hindering the level of customer satisfaction. We mention below, few simple, yet effective measures to achieve inventory control.



Inventory Turnover Ratio

Inventory Turnover Ratio measures, how quickly inventory is used up or turned over in a given time period. The higher the ratio the shorter the shelf life of the inventory and typically leads to higher sales volume. Inventory turnover should be closely watched for every item in the warehouse. As the value of the ratio begins to fall for a particular item, it signifies a warning to the management. The management should think of reviewing the value addition associated with the product, its pricing or its marketing strategies. Even after employing the changes, if there is no positive trend in the value of the ratio, the management should rethink of the annual stocking policy of the item. The stocking policy of an item should not be standard, rather it needs to be tied with the Inventory Turnover Ratio


Warehouse design
The Inventory Turnover ratio should also be closely linked to the way in which the items are placed in the warehouse. The fastest moving products in the inventory should be located closest to the shipping, staging, and receiving area in the warehouse. As the demand for each product decreases over time, products should be migrated backwards to free up space for items with higher inventory turnover. This would also provide the management a quick insight on the products having a higher demand and the product that are occupying a more time in the warehouse. This sort of classification would also enable the organization to adopt different strategies for different category of items based on their position in the warehouse.Items at the front of the warehouse should have tight inventory control, more secured storage areas and better sales forecasts. Reorders should be frequent, with weekly or even daily reorder. Avoiding stock-outs on these items should be a priority.


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