Advanced Strategies for Efficient Inventory Management

Inventory management isn't rocket science, but it's just as important. Managing inventory effectively reduces costs, prevents spoilage, and enables you to make better business decisions. It can even increase customer satisfaction by helping you avoid delayed shipments or unexpected stockouts.

This guide starts with a quick review of inventory management fundamentals before moving on to advanced techniques that can help you maximize operational efficiency. Discover how the right strategy can help you achieve a competitive advantage in an increasingly crowded marketplace.

Overview of Inventory Management Fundamentals

Before you run, you have to learn how to walk. The same principle applies to managing inventory. If you don't know the basics, you won't know the best way to apply the advanced strategies described below. Inventory management has four core elements:

• Warehouse flow. To manage inventory effectively, you must understand how goods move through your warehouse. A flow diagram tracks inventory from receiving right through shipping, making it easier to meet customer demand and maintain accurate financial records.

• Inventory reconciliation. Inventory reconciliation involves counting each item in your inventory and then comparing the physical counts to the data stored in your inventory management system. Counting hundreds of items may not sound like fun, but it increases accuracy, reduces the risk of fraud, and gives you more control over your company's finances.

• Stock rotation. Stock rotation is especially important for companies in the CPG industry, as it helps prevent spoilage. When you rotate stock, you move items with the earliest sell-by dates to the front of the shelf or cooler. This ensures that you use older items first, preventing perfectly good ingredients from going to waste.

Techniques for Minimizing Waste and Reducing Costs

Inventory waste isn't great for the environment — and it can wreak havoc on your bottom line. Waste occurs for several reasons, such as overproduction, improper storage, and shipping delays. Allowing raw materials and finished goods to go to waste has the same impact as withdrawing $1,000 from your company's bank account and lighting it on fire. 

Fortunately, these three methods are highly effective for minimizing waste and keeping your inventory costs in check.

Just-in-Time Inventory

Just-in-time inventory, better known as JIT, is a lean approach to inventory management. Instead of stocking up on raw materials or finished goods, you only order items when you need them to fill orders or keep the production process moving. A lean approach eliminates excess inventory, minimizes inventory costs, and reduces the risk of spoilage.

JIT is ideal for businesses that experience seasonal peaks and valleys in demand. For example, a company that sells hot cocoa mix probably has higher demand in the winter than it does in the summer. With JIT inventory, it's easy to adjust your production levels based on expected demand fluctuations. 

As an added bonus, just-in-time inventory frees up funds for other purposes. Instead of buying inventory and paying to store it, you can use that money to purchase new equipment or adjust your company's compensation structure.

Demand Forecasting

It would be great if you could look into a crystal ball and automatically predict how many items you need to satisfy consumer demand. Unfortunately, crystal balls don't work (at least not yet). The good news is that you can use a variety of forecasting techniques to determine how much to order or produce. Forecasting involves using historical data to predict future demand. 

Demand forecasting is especially helpful for predicting seasonal demand for your products. For example, if you operate a winery, business probably picks up during the holiday season. You can use data from last November and December to determine how much wine to produce in the coming year.

Accurate forecasting helps you make better decisions about your product mix. For example, if you offer three varieties of white wine, you can look at past sales data to determine which one is the most popular during each season. This makes it easier to plan your production schedule and make sure you have the right wines available at exactly the right times.

If you produce just the right amount of each product, you won't have to worry about high carrying costs or spoilage, making demand forecasting critical for minimizing waste and controlling your costs.

Strategic Supplier Partnerships

Overstocking, or ordering more than you can sell, is a serious problem for CPG firms, as it drives up costs and increases waste. According to the overstocking report released by Cin7 and Inventoro, overstock represented more than 50% of a seller's inventory after the busy fourth quarter of 2023. In fact, the average overstock value was $560,000.

If you want to truly master the intricacies of inventory management, you need to partner with companies that can meet your unique needs instead of forcing you to order raw materials or finished goods when you don't really need them.

A good strategic partnership starts with data sharing. Instead of wondering when you'll need additional items, a supplier should be able to access your production and inventory data, allowing them to anticipate your next order. If a supplier knows that you're getting low on a particular item, they can adjust their production and shipping schedules accordingly.

Strategic partners should also be willing to make small, frequent deliveries instead of making large deliveries a few times per year. This reduces the amount of storage space you need and prevents perishable items from expiring before you can sell them.

Leveraging Cin7 for Inventory Management

Now that you know all the methods of managing inventory effectively, you need the right tools. Gone are the days of chiseling inventory counts on stone tablets or writing them in a notebook with a pencil. Modern companies rely on inventory management software to keep track of finished goods, raw materials, and work in progress.

Cin7 is a cloud-based inventory management system that gives you more control over your inventory. It has all your favorite tools and features, for overcoming these inventory-related challenges:

• Difficulty syncing sales channels in an omni-channel environment

• Inability to track products efficiently

• Limited forecasting abilities

• Waste due to product spoilage

Cin7 is about more than tracking goods or determining how many items you need to meet customer demand. It gives you a real-time picture of what's happening with your business, whether you have a brick-and-mortar store or rely on a network of e-commerce websites to sell your products. Cin7 even has automation functions to maximize efficiency. 

The software is so robust that it combines these six functions into a single package:

• Inventory management

• Point-of-sale transactions

• Accounting

• Commerce integration

• B2B

• Customizable reporting

Cin7 even integrates with Amazon, Xero, Shopify, and QuickBooks Online to boost efficiency. Instead of moving from program to program, you can use the centralized Cin7 platform to access data related to inventory, accounting, and sales, saving you time as you grow your business. 

Want to learn more? Request a demo from Cin7.

Embracing Advanced Inventory Strategies for Business Success

Once you understand the basics, it's time to implement JIT, demand forecasting, and other advanced methods of inventory management. We also recommend forming strategic relationships with your most trusted suppliers. Implementing just one of these strategies can help your company save money, reduce waste, and maximize efficiency.

To learn more about inventory management, read more articles on the Balanced Business Group website or contact us to discuss personalized services for your business.