How is inventory managed?

Four steps to improve your inventory management

If you find that your inventory management could use improvement, tackle the issue by following the four steps below.

1. Assess the situation

Using the metrics mentioned above, determine the nature of your inventory issues and ensure you maintain adequate stock levels to meet customer demand (service level and coverage ratio).

2. Identify excess or obsolete inventory

Identify items that have been in inventory for more than 90 days.

These items often represent excess or obsolete stock. Your staff may have lost track of them after moving them to the back of the warehouse, onto high shelves, or into less visible storage areas, effectively forgetting about them.

Identifying these items and bringing them back into view will remind you that they can still be converted into cash:

• You can return them to the supplier.
• You can find new customers for them.
• You can repurpose them into usable products or sell them at a discount—especially since you may have already incurred holding costs of up to 20%.

Work with your sales and purchasing teams to develop an action plan to identify potential buyers.

3. Identify the root cause of the problem

Find out why you failed to achieve desired service levels or how you ended up with excess inventory.

• Is poor service level due to supplier lead times or purchasing practices?
• What’s causing your obsolete inventory? Have customer preferences changed? Did you simply order too much?

Analyze the underlying causes to implement appropriate measures and avoid repeating the same mistakes in the future.

4. Implement best practices and involve your team

Adopt best practices such as “just-in-time” inventory management to forecast the quantity of goods needed to meet demand. Use historical sales data, demand forecasts, and supplier lead times to determine optimal inventory levels that satisfy customer needs without tying up your cash flow.

Set a clear target for optimal inventory levels and communicate it to your team. You’ll also need their input to identify ways to achieve this goal.