We can guess that you probably own a wholesaler, retailer, or distributor business since you’re reading this blog.
Our inventory management tool is catered specifically towards businesses like yours.
Thus, this guide covers all the important stuff surrounding inventory management for wholesalers and such.
We have covered what inventory management for wholesalers is, technical analysis of the various methods of managing inventory efficiently, the importance of inventory management for wholesalers, and much more.
Let’s get started.
What is Inventory Management?
Inventory management is how you monitor, track, and govern your inventory and the flow of goods within. The system constitutes a part of supply chain management.
It includes various aspects such as the process of ordering, storing, and using the company’s inventory. It also controls the number of products for sale.
Inventory tracking helps to manage the inventory and stock levels of the company.
Inventory management has been defined quite simply.
It has the stock level of the right quantity and place to be sold.
All at the right time and the right cost. Having effective inventory management helps to ensure a sufficient amount of stock available at hand to meet customer demands.
Mishandling of inventory management or poor inventory control can result in enormous losses for businesses. This may be due to dissatisfaction with potential sales or overstocking. Inventory management ensures that such mistakes are avoided.
Inventory management is a part of supply chain management.
It focuses on having the right amount of products for sale, and more importantly, at the right time.
Methods of Inventory Management
There are several methodologies for supply chain management.
They help to keep the right amount of goods and operate them profitably.
Managing an inventory is not an easy task. It requires dealing with a large number of stock-keeping units (SKUs).
Let’s have a look at some of the inventory management techniques that make the management process a little easier.
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EOQ (Economic Order Quantity)
EOQ stands for Economic Order Quantity, which is the minimum amount of inventory or stock. Quantity must qualify meeting peak customer demands without running out of socks.
In other words, EOQ is the optimum number of products to minimize the total cost of ordering stock.
Optimum EOQ for your inventory can help you to save a decent amount of total costs.
Three types of entities help to calculate economic order quantity. They are:
- Demand
- Relevant Ordering Cost
- Relevant Carrying Cost
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ABC analysis
Many businesses find it beneficial to have a good grip over expensive items.
Preferably by classifying inventory items into A, B, and C categories.
As per its name, this methodology classifies inventory into three categories: A, B, and C.
Category A is best-seller goods or higher-value items. These consume the least amount of storage space.
Category B represents goods that possess moderate value. These are in regular demand and are available in moderate quantity.
Category C represents low-value goods that take up a huge amount of inventory costs.
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JIT methodology
Just-in-time (JIT) inventory management is one of the inventory management techniques that helps to organize raw material orders.
It is a workflow methodology that is designed to reduce flow times within the production system.
Just-in-time Inventory establishes a ‘zero inventory’ system.
Manufacturers utilize this strategy to increase the efficiency of the inventory by reducing inventory costs. Here, goods are only received on the requirement of the manufacturer.
This reduces the holding costs in the inventory.
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Safety Stock
Being on the safer side always helps you to meet the needs even at the times of crisis.
It helps in preventing loss of revenue, customers, and market share. Safe stock can avoid variability of the product or sudden spikes in demand in the market. It also prevents any stock out.
There are many advantages to having a safety stock inventory.
As discussed before, it provides a solution to stock outs. It shall also prevent sudden spikes in demand and incorrect market forecasts.
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Minimum Order Quantity
A Minimum Order Quantity or MOQ is the smallest amount of stock that a supplier is ready to sell.
High-valued inventory items have a smaller MOQ, whereas the cheaper items that are cost-effective to produce have a higher MOQ.
MOQ is figured by the manufacturer and what it costs them to produce something.
It varies between every single product and supplier. MOQs are primarily important for buyers and manufacturers.
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Reorder Point
Maintaining a re-order point protects you from market slumps. It ensures that you have the required amount of stock in your inventory every month.
Reordering an additional amount of stock for inventory reduces the chances of running out of stock. In the same way, delay in ordering increases the chances of inventory running out of stock.
To calculate the reorder point, you need to:
- Calculate lead time in days
- Have an account for safety stock in days
- Add lead time with safety stock for,
- determining the reorder point
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Managing SKUs (Stock Keeping Units)
SKU plays an important role in managing an inventory. SKU stands for Stock Keeping Units and is a unique product code.
It helps in identifying, tracking, or searching for it in the invoices, order forms, etc.
SKU can also help for tracking billable intangible products, such as warranties or repair time of units.
The primary benefits of using SKU include monitoring inventories and stocktaking. It also helps in identifying stock shrinkage, replenishing inventory, and increasing profit.
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Six Sigma
Six Sigma is a data-driven process that helps to reduce and finally eliminate product defects.
The objective of Six Sigma is to ensure that the final product that reaches the consumers is almost perfect.
Lean Six Sigma, or LSS, achieves a perfect product.
It is the combination of Six Sigma with Lean Manufacturing. Lean Six Sigma confirms the waste removal and makes sure process variation decreases. This technique ensures that there is systematic manufacturing and flawless product output.
What is Inventory Management software?
Today, we have many inventory management software and even inventory management apps. Earlier, the inventory management software systems used to be simple spreadsheets.
These Excel spreadsheets and balance sheets help one to track the quantities of goods in a warehouse.
But today, software systems have become more complex and are more than just simple spreadsheets.
Inventory management software systems don’t just keep track of goods in inventory but also calculate costs in multiple currencies. Some heavy software systems adapt customization for large requirements of an organization.
An effective inventory management software helps you to reduce costs and keep track of your inventory in real time. Working with the aid of good software is crucial as it prevents production shortages.
Many inventory management software help inventory management for wholesalers on a per-location basis and also with the help of SKUs and barcodes.
Some software offers you tools to track your inventory by item or in the majority.
The software connects you directly to your point of sale. This adjusts your stock levels automatically every time you make a sale.
Inventory management software helps in keeping track of various sales, for example, online sales on Shopify or Amazon.
Benefits of Inventory Management
Inventory management benefits the operational efficiency of a company, be it huge or small scale. Thus, helps in the long run.
It reduces costs, which eventually provides insights into your financial understanding. It provides better customer service and also prevents loss caused by theft, damage, and returns.
Effective stock management allows you to track your inventory in real time.
It helps avoid inventory being out of stock and also prevents investing funds in excess stock.
By efficiently managing your inventory, you can ensure your products are sold in time.
This helps you to avoid spoilage of the obsolescence of products in the inventory. You can even accurately record your inventory on financial documents by doing inventory accounting.
By appropriately using the techniques, a business can enjoy various benefits of inventory management.
Why is Inventory Management important?
The objective of inventory management systems is to understand the current state of inventory and manage it in real time.
Accurate inventory tracking and effective inventory management are the strong pillars of a successful e-commerce brand.
Some great advantages of a proper inventory management system are warehouse organization and improvement in the accuracy of inventory orders. An increase in efficiency and productivity, reduction of average costs, and time consumption are also a few.
Inventory Management processes are extremely vital as far as the success of any retailer in the market is concerned.
With systematic inventory, the rest of your supply-chain management will turn out great accordingly.
Bottom Line
Every business tries to balance and manage inventory levels with the right amount of products to work effectively.
To scale up the efficiency, consider modifying the way you govern your inventory management for wholesalers.
As we discussed, an effectively managed inventory can do wonders for you. If you utilize the techniques systematically in your warehouse, a profitable result is achievable.
Managing your inventory efficiently using cloud software is always recommended. ProfitBooks is the perfect piece of the puzzle, with a streamlined inventory system. The best thing is that you can use it for 100% free!
Also Read:
Choosing The Best Inventory Management Software
Top 5 Inventory Management Software For Wholesalers & Distributors
Retail Inventory Management Methods & Techniques
