Ordering enough products and materials to meet customer demand has always been a tricky process. During slow seasons, you have to worry about an increase in carrying costs. On the flip side, running out of stock and disrupting the manufacturing process could lead to backorders and frustrated customers.
Types of Inventory Control Methods
Balancing inventory levels depends on the type of control system that has been implemented: push or pull inventory management. Push inventory involves ordering materials based on forecasted customer demand. Estimates typically range from 6 months but could extend to 12 or 18 months in advance. Based on those predictions, you purchase enough materials to meet the anticipated demand. With pull inventory, you:
- Order materials in more frequent small batches
- Order enough inventory to meet spikes in demand
- Push the products already in stock during that sales window
Some problems with this system are the high inventory carrying costs such as storage space. You could also have an increased risk of inventory dropping in value. Pull inventory management works as a type of lean manufacturing method that many small and large organizations use today. With this technique, products are fulfilled only when there are purchases.
A major disadvantage to push inventory is that you can have inaccurate forecasts, leading to possible frequent stock deficits. To overcome this issue, some organizations have combined push inventory with pull inventory. Businesses would make bulk purchases of certain items to act as a buffer. These extra products can be used when there are spikes in demand that might tax pull inventory measures.
Accuracy Is Essential
Even with efficient measurements to procure inventory, an inaccurate one can cause disruptions. You may lose the product when it is not placed in the correct position or the right zone. This could lead to inaccurate data in your records, creating issues further down the supply chain.
Even manually evaluating inventory could still lead to problems. Item numbers may be accidentally entered incorrectly in computer systems. This can cause inventory numbers to fluctuate or worse, show that there are no products available. Not to mention that manual data entry takes long labor hours to enter all sales orders that need to be sent.
With new warehouse innovations entering the market, many organizations are adding management software and automated systems to help inventory accuracy. These solutions allow for more accurate processing, such as automated data entry. Creating a balanced inventory scale is essential to match customer expectations and streamline warehouse operations. Evaluate processes, create an inventory planning model, and implement all the proper tools that allow you to successfully stock and deliver products for happy customers. If you are interested in learning more strategies to help keep a balanced inventory, check out the infographic below.
Infographic created by WSI, a logistics provider