Inventory Control Methods - 11 Common Ways of Managing Your Products and Ordering

Summary

In this video, Michael from KORONA discusses the importance of modern inventory management for small businesses using advanced Point of Sale (POS) systems. He explains how effective inventory control methods, such as ABC analysis, just-in-time ordering, and demand forecasting, can help businesses optimize stock levels, improve cash flow, and prevent stockouts. The video highlights 11 key inventory control strategies that enhance efficiency, reduce waste, and boost customer satisfaction. Michael also emphasizes the benefits of KORONA’s POS system, which simplifies inventory management and offers businesses detailed reports for better decision-making.

Takeaways

• 😀 Inventory control is crucial for ensuring that your business stocks the right amount of products, preventing overstocking or stockouts.
• 😀 Modern POS systems help retailers manage inventory across multiple channels, providing valuable data for better business decisions.
• 😀 Effective inventory control leads to more sales by ensuring that customers find the products they want in stock.
• 😀 Overstocking ties up cash flow and storage space, while running out of stock can cause lost sales and customer loyalty.
• 😀 Proper inventory methods can improve storage efficiency, reduce waste, and even benefit the environment.
• 😀 ABC analysis helps retailers prioritize their inventory by categorizing products based on revenue and profitability.
• 😀 Just-in-time (JIT) inventory reduces storage costs by ordering products only when necessary, though it requires good vendor relationships and timely delivery.
• 😀 Economic Order Quantities (EOQ) help businesses find a balance between ordering too much and running out of stock.
• 😀 Custom par levels automate inventory management by notifying retailers when stock reaches a certain threshold.
• 😀 FIFO and LIFO are two common costing methods for inventory, with FIFO being the most popular among retailers.
• 😀 Dropshipping allows businesses to bypass inventory management entirely by having products shipped directly from suppliers to customers.

Q & A

What is the importance of inventory control in retail businesses?

Inventory control is crucial because it ensures that a retail business maintains optimal stock levels, avoiding both stockouts and overstocking. Proper inventory control leads to increased sales, better customer loyalty, improved storage efficiency, and reduced waste.

How does inventory control affect customer retention?

When inventory control is managed well, it ensures that products are always in stock, preventing stockouts that could drive customers to competitors. Maintaining adequate stock levels helps retain customers by providing a reliable shopping experience.

What are some of the risks of poor inventory control?

Poor inventory control can lead to stockouts, which result in lost sales and frustrated customers. It can also cause overstocking, which ties up cash flow and takes up valuable storage space, impacting the ability to purchase new products.

What is ABC analysis, and how does it benefit retailers?

ABC analysis is a method of inventory management where products are categorized into three groups (A, B, or C) based on their revenue and profitability. This allows retailers to prioritize high-performing items for more focused attention, optimizing inventory and pricing strategies.

What is the just-in-time (JIT) inventory method?

The just-in-time inventory method involves ordering products only when needed, minimizing the amount of stock on hand. This method helps maintain healthy cash flow and storage efficiency but may not be suitable for businesses with long delivery times or unpredictable sales.

What is the economic order quantity (EOQ) method?

The economic order quantity method seeks to find the optimal balance between the costs of ordering and holding inventory. It calculates the ideal order quantity to minimize total costs, considering factors like demand rate, ordering costs, and storage costs.

What are custom par levels in inventory management?

Custom par levels are predetermined stock thresholds that trigger restocking alerts when inventory drops below a certain level. By setting these levels based on factors like sales patterns, delivery times, and order sizes, businesses can automate ordering and maintain optimal stock levels.

How do FIFO and LIFO inventory costing methods differ?

FIFO (First-In-First-Out) assigns the cost of goods sold to the earliest purchased inventory, while LIFO (Last-In-First-Out) assigns the cost of goods sold to the most recent purchases. FIFO is more commonly used as it reflects the natural flow of inventory in most retail settings.

Why is vendor relationship management important in inventory control?

Maintaining strong vendor relationships ensures timely deliveries, avoids missed payments, and helps in negotiating better terms. Integrated vendor management in POS systems can automate ordering and ensure that stock levels are consistently maintained.

What is demand forecasting, and how does it help retailers?

Demand forecasting involves analyzing historical data to predict future sales trends. By understanding busy and slow periods, retailers can better plan their inventory needs, avoiding both stockouts and excess inventory during peak seasons.

What is dropshipping, and how does it affect inventory management?

Dropshipping is a business model where retailers act as facilitators, with products being shipped directly from the supplier to the customer, bypassing the need for inventory management on the retailer’s part. This reduces the need for stock tracking and warehousing but requires reliable supplier partnerships.

What role does a POS system play in inventory control?

A POS system centralizes product data and inventory information, allowing retailers to generate valuable reports and insights. It automates inventory tasks like tracking stock levels, generating re-order notifications, and providing actionable analytics for smarter business decisions.