What are the best techniques for identifying inventory management problems?

1 Track inventory turnover

One of the most important indicators of inventory performance is inventory turnover, which measures how often you sell and replace your stock. A low inventory turnover means you have excess or obsolete inventory that ties up your capital and storage space. A high inventory turnover means you have high demand and efficient operations, but it can also lead to stockouts and lost sales. To track your inventory turnover, you need to calculate your cost of goods sold (COGS) and your average inventory value for a given period. Then, divide your COGS by your average inventory to get your inventory turnover ratio. You can compare this ratio with industry benchmarks or your own goals to see if you have any inventory issues.

3 Analyze inventory reports

A third technique for identifying inventory management problems is to analyze inventory reports that show you various aspects of your inventory performance. For example, you can use inventory reports to see which products are selling well and which ones are not, which suppliers are delivering on time and which ones are not, which locations have optimal inventory levels and which ones have too much or too little, and so on. By analyzing inventory reports, you can identify patterns, trends, and anomalies that can help you make better inventory decisions and optimize your inventory management strategy.

4 Use inventory forecasting

A fourth technique for identifying inventory management problems is to use inventory forecasting, which involves predicting your future inventory needs based on historical data, market trends, customer demand, and other factors. Inventory forecasting can help you avoid overstocking or understocking your products, as well as plan your purchasing, production, and distribution activities. You can use inventory forecasting tools or methods, such as moving average, exponential smoothing, or regression analysis, to estimate your future inventory demand and supply.

5 Implement inventory control

A fifth technique for identifying inventory management problems is to implement inventory control, which involves setting and enforcing rules and procedures for managing your inventory. Inventory control can help you maintain optimal inventory levels, reduce waste and shrinkage, improve customer service, and increase profitability. Some of the inventory control methods you can use are reorder point, economic order quantity, safety stock, ABC analysis, FIFO, and LIFO.

6 Seek feedback

A sixth technique for identifying inventory management problems is to seek feedback from your customers, employees, and suppliers. Feedback can help you understand how your inventory management affects your stakeholders and how you can improve it. For example, you can ask your customers about their satisfaction with your product availability, quality, and delivery. You can ask your employees about their challenges and suggestions for managing your inventory. You can ask your suppliers about their expectations and performance regarding your inventory orders. By seeking feedback, you can gain valuable insights and perspectives that can help you identify and solve your inventory management problems.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?