Aside from the obvious cost savings, good inventory management also has the potential to enhance your cash flow. Inventory stock should be included in your cash flow management because it represents money spent that will not generate cash until your inventory is sold.
The more time inventory spends on your shelves, the more money it costs and the more space it takes up. Implementing inventory control techniques will increase inventory turns while saving you time and money. In the presence of reliable inventory forecasting software, you will be able to identify exactly what and how much inventory stock you have on hand. Stock levels on hand have an impact on sales because they determine how much you have to sell and how much you need to buy.
There are numerous inventory control techniques that you may employ to save money and improve cash flow. Begin by implementing the six practices outlined below.
6 methods for cost savings with inventory forecasting software
If you use inventory forecasting, the following six methods can help you save a lot of money. Have additional questions about Amazon inventory management system or forecasting at Amazon? Contact Urtasker.
- Minimum stock levels to be established.
Keep track of inventory better by setting a minimum level for each of the inventory items that must always be kept in stock. When your inventory stock falls below these specified thresholds, it is time to place more orders. It is possible to save money by reducing holding costs such as storage, insurance, and handling fees by only stocking what is necessary to meet sales demand.
Minimum stock levels will vary by product, depending on the speed with which the item sells and the lead time required to replenish inventory. A few times a year, check minimum stock levels to make sure they’re still relevant and make adjustments to meet current demand.
- Forecasting with precision
A critical aspect of inventory control optimization is the ability to forecast demand as accurately as feasible. While numerous variables complicate precise forecasting, there are a few areas to examine when making future sales projections. Among these are, but are not restricted to, current market trends, historical sales over the same time period in past years, seasonality, current and forecast growth, and the general economic condition.
An inventory information system that works well allows you to keep track of past sales and use that information to predict future sales. To avoid waste, spoilage, and obsolete or surplus stock that eats up valuable storage space that could be used for more popular, fast-selling items, accurate forecasting saves money.
- Management of the supply chain
Leaner supply chains reduce inventory, improve time to market, reduce cycle times and increase profits. As a result, all forms of inventory are reduced as a result of optimization of the supply chain, which is critical.
A good relationship with your suppliers is essential if you need to return slow-moving stock, fix manufacturing issues, or quickly restock an item that’s been in high demand. Good relationships are built on open, reciprocal communication that makes it easier to address supply-chain issues.
Providing notice to suppliers when you anticipate an increase in sales, for example, gives them time to adjust their production to meet the anticipated increase in demand. A supplier notifying you when a product is running late or out of stock allows you to put a hold on advertising and promotions.
- Scheduling of manufacturing operations
Production scheduling is perhaps one of the least understood parts of manufacturing, and it frequently leads to product flow imbalances. This can result in bottlenecks, extended cycle times, and unpredictable production, all of which can negatively impact customer service levels. Producing efficiency and order-to-delivery effectiveness measurements can help manufacturers save money while also maximizing the value of their working capital investments.
You can make the most efficient use of your physical infrastructure and equipment if you plan and schedule your activities in advance of time. In the long run, spreading out the workload to avoid prolonged periods of intensive use will increase the longevity of equipment and save money in the short run.
- Manufacturing that is adaptable
Customers today want more than simply the lowest total pricing. They also expect the best service. Fast turn-around times, high-quality products, on-time delivery, and excellent customer service are all vital to today’s customers, just as competitive pricing is. Lack of adherence to these requirements can easily result in lost sales, costing money and even resulting in excess inventory during the business year.
When it comes to manufacturing, flexibility refers to the ability to make things that are easily adaptable to changes in both the type and amount of the product being manufactured. Adapting to changing customer demands requires a degree of flexibility in the operations and management of organizations.
- Lowering the amount of merchandise on hand
There are numerous ways to save money by lowering the amount of inventory on hand. From optimizing order quantities and purchasing frequency to getting rid of out-of-date inventory, there is something for everyone. Inventory that is no longer in demand by customers is referred to as obsolete inventory. It occurs when new product launches introduce newer versions of the same item, such as smartphones, or when customer demand patterns change as a result of unanticipated market developments, such as the recession.
Businesses should monitor the product life cycles of each unique item on a regular basis in order to identify changes in demand patterns over time. Solid inventory control assists you in avoiding wasteful spoilage as well as dead stock. Once again, avoiding dead, outmoded, or expired products will save you money in the long run.
- Choosing Reordering Points
Using reorder points, you can have your inventory reordered for you when it hits its minimum stock level. Because you’ll be aware of your sales velocity, and when you’re most likely to run out of stock, you’ll be able to place orders right up until the last minute. If you wish to establish a reorder point, you must first calculate the par level. This is the least amount of inventory you will require when placing a new order with your supplier or manufacturer.
To calculate par level, you’ll need to know how much demand there is currently, how much demand there will be in the future, and how long it will take to place a new order.
PAR Level = Average daily sales x lead time in days + safety stock
Inventory forecasting can help your firm grow, especially if you wish to expand. It helps optimize inventories. Inventory forecasting can be automated using inventory management software. That data is accurate, efficient, and thorough. This software helps strike a balance between too much and too little stock. Reorder points are set using inventory management software.