TOP 5 INVENTORY MANAGEMENT TECHNIQUES Inventory management, which involves a number of techniques and strategies, can become complicated, especially for larger apps with numerous moving parts. Let’s look at a few inventory control strategies that you could use in your own warehouse.
1) Economic Order Quantity
The optimal order quantity to reduce inventory costs, such as holding costs, shortage costs, and order costs is called an economic order quantity, or EOQ. Ford W. Harris created this production-scheduling model in 1913, and it has since been improved. Demand, ordering, and holding costs are all considered constant in the formula.
2) Minimum order quantity.
The smallest number of units a company is willing to sell to a single customer at once is known as the minimum order quantity. Even though a retail establishment might be delighted to sell just one T-shirt or one head of lettuce, doing so rarely results in a profit. Depending on the product, they might demand a minimum order of hundreds or thousands of units.
3) ABC analysis.
This method divides products into three groups in order to pinpoint those that have a significant impact on the cost of inventory as a whole.
- Your most valuable products and the ones that add the most to overall profit fall under Category A.
- The products in Category B are in the middle of the value spectrum.
- Small transactions that are essential to overall profit but have little bearing on them individually fall under Category C.
4) FIFO and LIFO.
There are two ways to calculate the cost of goods: LIFO and FIFO. First-in, first-out, also known as FIFO, is the theory that older stock is sold first to keep it current.
In order to stop stock from spoiling, LIFO, or last-in, first-out, assumes that the more recent inventory is usually sold first.
5) Reorder point formula.
Businesses that keep extra inventory on hand in case of unforeseen circumstances use this technique. Multiplying the lead time by the daily average usage and adding the quantity of safety stock you keep will give you the reorder point with safety stock.
If you want to compete seriously and provide your customers with the experience they want, inventory management is essential whether you’re a brick and mortar, ecommerce, or multichannel retailer. You won’t succeed without using inventory management strategies. Choose an e-commerce platform like Big Commerce that enables you to centralize your store’s inventory management across all channels, or sign up with an inventory software that masters the fundamentals of inventory management and serves as a catalyst for your growt