As a business owner, you know that inventory management is one of the most vital aspects of your success. You need to balance supply and demand, anticipate market changes, and keep track of which products are selling well. The key is to make sure your stock levels are correct so that you don’t run out of items when needed the most.
It’s important for companies to understand their inventory management techniques, which are three major types. By understanding these techniques, you can decide the right one to implement at a given time in your business.
#1 Just-in-time (JIT) method
The JIT method was originally developed to reduce stock levels but aims to improve other business processes as well. This entails creating, at short notice, only what is required when it is needed. This means that mutually beneficial relationships between suppliers and customers must exist for all parties involved to benefit.
Benefits include lower stockholding costs due to decreased storage space requirements and improved cash flow through reduced investment in stocks that may never be sold.
#2 The Push Strategy
The Push strategy is based on the idea that you need to push your products out as far as they will go (hence the name “Push”). The goal of a push system is to move accumulated products out into the marketplace. Some benefits of this strategy include reducing costs by avoiding having too many goods in stock, not holding large amounts of cash tied up with those goods, and reducing damage through storage.
A drawback could be if sales do not meet expectations or market conditions change, such as an item may become unpopular. This strategy might only work for companies who already know what their customers want and can accurately predict future demand.
#3 The Pull Strategy
The pull strategy is when you start with the customer and move backward. This entails providing customers with what they want when they want it. Some benefits include keeping up-to-date on market research, allowing for more accurate forecasting, and obtaining information about customer needs in real-time, which can help in decision making.
A drawback would be if there isn’t enough of a particular product to go around, or that marketing efforts aren’t meeting expectations and people aren’t aware of products available.
Why is Proper Inventory Management Important for Businesses?
Inventory management is an important part of a business because it helps keep up demand and keeps the supplies stocked. If there aren’t enough supplies, then people would have to wait to get the products that they need, which could result in them going somewhere else to purchase those products.
Another reason why inventory management is important for business is that if there are too many goods stockpiled, the business becomes susceptible to losing money from not being able to sell those goods. In addition, having too much product also means that they’re carrying costs (i.e., interest on loans taken out for inventory), storage costs (if stored offsite), and insurance costs.
How Do Businesses Implement Proper Inventory Management Techniques?
Start by deciding what the ideal inventory is for your business. This could be predetermined due to sales history, industry standards, etc. Once you have an idea of the ideal inventory level, look at current inventory levels and try to reduce them so that there are more goods available, but you aren’t carrying too much stock.
By doing this, you will save money on interest payments, warehouse costs, and insurance premiums, which all adds up to improve your bottom line. There are many different ways that companies go about reducing their inventory, including just selling off excess products or using managing software that alerts managers when supplies are running low so they can place re-orders before stock runs out.
Inventory management is a crucial part of running a business because it helps maintain profit margins, keeps up expected sales, and makes sure that there are enough supplies for customers.
There are three major inventory techniques which include the push strategy, pull strategy, and just-in-time. Businesses implement these strategies by first deciding what their ideal inventory levels should be, looking at current levels, reducing excess amounts of goods available, and re-ordering when necessary to avoid running out of stock.