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Five Ways To Improve Business Inventory Management 

   
2018-03-02 
Kristin Deal 
   
Effective inventory management is essential for any business that seeks to maximize its profit. Many businesses, however, do not take the effort to reduce costs or organize their inventory in a more efficient manner. There are many different ways in which a company can streamline its inventory management system.

1. Appropriate Item Numbering

Often companies assign their products random numbers that don't mean anything. However, if a specific structure is set up for numbering an item, employees all throughout the company can know exactly what an item is just by looking at its number. For example, if my item is blue, ten inches long, and made in the year 2011, I could assign it an item number of BLU-010-011. Simply by knowing the structure of this code, I am able to discern that exact information about the product.

2. Specified Storage Locations

Having specific storage locations for all materials and items can contribute significantly to the speed in which a product reaches a customer. For example, if each item is assigned a specific bin location in which to always be stored, the person working in the warehouse always knows where to find something. He never has to go looking for a misplaced item if there are specific, labeled locations for each item. When an item is requested, no time is wasted searching for it.

3. Efficient Warehouse Organization

A warehouse should be divided up into different sub warehouses¯ that represent different functions of the manufacturing process. It is more effective to have a receiving dock, raw materials storage area, production section, finished goods storage area, and a shipping dock. If there are different warehouses for each step, it is much easier to track the status of a work in progress. When a customer calls asking about the status of his order, having efficient warehouse organization will help determine that status. Also, from an accounting perspective, overhead can be more effectively allocated when there is the ability to keep track of what stage in the manufacturing process an item is in.

4. Use of Price Codes

Different codes should be assigned to products based on how much a product can be discounted. If one product has a high profit margin, it should have a price code indicating that a salesperson can discount it a specified amount to a certain type of customer. Conversely, if a product is barely producing any profit, it should have a price code that reveals that it should not be discounted. These price codes keep customers happy because they get discounts on certain items. They also benefit the manufacturer because the codes allow salespeople to know what products they should not discount if they want the company to make a profit on the sale.

5. Take Advantage of Bulk Discounts and Predictions

When purchasing inventory, often a discount will be applied for purchasing in bulk. A good inventory management system will have the ability to forecast the demand of an item in the future. This will help a purchaser know if it is economical to take advantage of the bulk discount. Accurate forecasting is important because even if there is a discount for buying in bulk, if most of the product won't be used for a long time and has to be stored, it is not worth buying all of the extra items to save a little money. The overhead of storing the excess often will exceed what would have been saved through the discount.

Efficient inventory management systems are imperative to a successful business. There are many factors that are involved in creating a successful system. They can be difficult to implement, but most likely will benefit the company in the long run. 

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