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What is the most efficient way to balance inventory levels and minimize waste?

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Balancing inventory levels and minimizing waste are two key challenges for any retail operation. Inventory is the lifeblood of your business, but it also comes with costs and risks. Too much inventory can tie up your cash flow, take up valuable space, and increase the chances of spoilage, theft, or obsolescence. Too little inventory can lead to stockouts, lost sales, and dissatisfied customers. How can you find the optimal balance between inventory and waste? Here are some tips to help you.

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1 Track inventory accurately

The first step to balance inventory and waste is to track your inventory accurately and regularly. You need to know what you have, where you have it, and how fast it moves. You can use inventory management software , barcode scanners, RFID tags, or other tools to automate and streamline this process. Tracking inventory will help you avoid overstocking or understocking, identify slow-moving or dead items, and plan your replenishment orders more efficiently.

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Charle Magne Equibal

Parts Inventory Manager
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Identfy and categorize FMCG’s which must have tigher control and regular tracking. Monitor items categorized us slow and nonmoving to prevent further stock replenishment.

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2 Forecast demand and seasonality

The second step to balance inventory and waste is to forecast your demand and seasonality. You need to anticipate how much and when your customers will buy your products. You can use historical data, market trends, customer feedback, or other sources to estimate your future sales. Forecasting demand will help you adjust your inventory levels according to the peaks and valleys of your sales cycle, avoid excess or shortage of inventory, and optimize your pricing and promotions.

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3 Implement inventory control methods

The third step to balance inventory and waste is to implement inventory control methods by applying rules and techniques. ABC analysis is a method that divides your inventory into three categories (A, B, and C) based on their value and turnover rate, allowing you to allocate more resources to the A items. Additionally, the EOQ model can be used to calculate the optimal order quantity that minimizes the total cost of ordering and holding inventory. Safety stock is also a useful tool, as it is the extra inventory that you keep on hand in case of unexpected demand or supply delays. By using these methods, you can manage your inventory effectively, protect your service level, and ensure customer satisfaction.

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Charle Magne Equibal

Parts Inventory Manager
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Consider using ABC analysis in matrix with VEN analysis. To narrow down results on which items should have tight control. Although high service level and customer satisfaction is one of the targets, we must not forget to care for company cost of inventory.

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4 Adopt inventory reduction strategies

The fourth step to balance inventory and waste is to adopt inventory reduction strategies. To reduce costs, space, and waste without compromising sales or service, consider just-in-time ordering and receiving, dropshipping products from a third-party vendor, and cross-docking for faster delivery times. Just-in-time requires reliable suppliers and accurate demand forecasts, while dropshipping requires quality and timely service from a vendor. Cross-docking can help minimize waste but also requires careful handling of inventory.

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5 Monitor and measure your performance

The fifth step to balance inventory and waste is to monitor and measure your performance. Tracking and evaluating how well you are managing your inventory and waste is essential. You can use metrics such as inventory turnover ratio, inventory carrying cost, and fill rate to measure your performance. The inventory turnover ratio indicates how efficiently you are using your inventory and generating sales, whereas the inventory carrying cost measures the total expense of holding and maintaining your inventory. The fill rate measures the percentage of customer orders that you can fulfill from your available inventory. With these metrics, you can identify areas for improvement and maximize your sales while minimizing your waste. Following these steps will help you balance your inventory levels, improve efficiency, profitability, and customer loyalty.

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Charle Magne Equibal

Parts Inventory Manager
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Always check your TOR, OTC and Order ratio, this three must have a balance as for example you have a very high TOR, but verry low OtC and order ratio it may indicatecustomer dissatisfaction due to low availability.

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6 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?

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What is the most efficient way to balance inventory levels and minimize waste?

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1 Track inventory accurately

2 Forecast demand and seasonality

3 Implement inventory control methods

4 Adopt inventory reduction strategies

5 Monitor and measure your performance

6 Here’s what else to consider

Retail Operations

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