Ensuring Optimum Stock Levels

Striking the balance and maintaining optimum stock levels for your business is by no means an easy task.

Retailers are finding that consumer demand is getting more unpredictable — which increases the importance of changing the way they manage their stock. However, maintaining optimum stock levels is often easier said than done. Customer demand can be sporadic and unpredictable at the best of times, so how do you eliminate Out of Stock issues for good ?

Out of stock issues can be as much of an annoyance for the customer as for a business. Stockouts become little black holes which can leave you locked in limbo as you cannot fulfil your orders.  Customers grow frustrated and resentful as they wait for new inventory to arrive.  Ensuring optimum stock levels is key for keeping your business running efficiently.

Below, we share how to reduce stock levels and eliminate Out of Stock issues for good so that you can continue to manage your inventory and grow your business.

1. Master your lead times

Your lead time is the delay between your purchase order and the actual delivery date by the supplier and is of critical importance.

The sole purpose of your inventory is to cover the lead times of your suppliers. Your aim is to make your lead times as short as possible, so that you can meet customer demand and minimise the time between paying for stock and receiving the revenue.

This way, you maintain accurate stock levels within your inventory and avoid stock outs.

2. Automate the process with inventory management software

Trying to maintain the balance between overstocking and understocking can be challenging.

If you stock too little, then you might experience stock outs, and this can lead to unhappy customers and a potential loss of sales.

On the other hand, if you stock too much then you’ll be taking up valuable warehouse space and will likely incur additional charges.

Fortunately, WMS software can help prevent this from happening. You can track low inventory levels and quickly identify the reorder points for each of your products, in turn avoiding the occurrence of stock outs.

3. Calculate reorder points

A reorder point is the level of stock that you don’t want to go below. An ideal inventory reorder point also includes the time it takes to make a new order before your stock reaches the threshold.

In other words, when the stock level for one of your products is about to reach the reorder point, a replenishment order should be placed immediately.

It’s likely that your reorder points will be different for every individual product that you sell – items are likely to have different demand rates and vary in how long it takes to receive the replenishment delivery.

4. Use accurate demand forecasting

Another way in which you can reduce stock levels and avoid stock outs is through using accurate demand forecasting.

Forecasting demand from reports and historical sales data allows you to order just enough stock to satisfy demand throughout the year and reduces your cost of inventory as you won’t be overstocking or understocking your warehouse.

In addition, predictive data analysis better equips you to make business decisions based on previous months – helping you to estimate the correct size of your inventory.

This way you don’t order too much stock and you don’t risk being too low on inventory ensuring optimum stock levels.

Closely monitoring your sales trends helps your business to reduce the likelihood of carrying excess stock that you’re unable to sell.

5. Implement a Just in Time (JIT) inventory system

Just in Time (JIT) inventory management is a method for maintaining almost no inventory in your warehouse – ordering everything you need at the moment you need it. In other words, JIT means having the right products, at the right time and in the right place along with any other materials needed.

It reduces your stock levels as items and materials are only ordered when they are required, rather than months or weeks in advance. This also reduces your cost of inventory.

Ordering inventory on an as-needed basis also means that you don’t need to hold any safety stock and your warehouse operates with continuously low stock levels.

However, while JIT reduces your inventory significantly, it can result in stock-outs. For example, if there was a sudden and unexpected spike in customer demand for a particular product then you may not be able to fulfil the orders as expected.

You can minimise this risk by developing strong relationships with your suppliers ensuring optimum stock levels.

6. Use consignment inventory

Consignment inventory is different from traditional inventory practices in the sense that the supplier retains ownership of the stock until it has been sold to the customer.

In other words, the retailer doesn’t pay for the product until it has been sold.

In turn, this reduces your stock levels and shifts inventory carrying costs from your business to your supplier or manufacturer. It’s a fairly common practice for big-ticket inventory in retail, such as furniture or other large items.

Use of consignment inventory practices can be particularly beneficial to online retailers when customer demand for certain products is uncertain.

On top of this, the retailer takes a much smaller financial risk with consignment inventory as he or she does not pay for the product unless it has been sold.

7. Make use of safety stock

Stock outs stem from many different factors, including fluctuating customer demand, inaccurate forecasts and variability in lead times.

One way in which you can mitigate the risk of stock outs and ensuring optimum stock levels for your business is through maintaining a safety stock level of your inventory.

Safety stock is simply extra inventory that is carried to prevent stock outs.

The correct levels to set depend entirely on your business. Some operations managers will base it off a portion of cycle stock level (e.g. 10% or 20%) while others use hunches.

In a sense, safety stock acts as a buffer in the event of a stock out – but may not prevent all stock outs from happening.

In Summary

Striking the balance and maintaining optimum stock levels for your business is by no means an easy task. In fact, it can take a long time to perfect your stock levels. By keeping an eye on your inventory and using the above tactics to reduce stock levels and avoid stock outs, you can gain a much better understanding of how much you need to stock and eliminate Out of Stock issues for good.

By using inventory management appropriately and WMS systems, a warehouse, distribution centre or manufacturing business will be able to go a long way in ensuring a happy customer and a healthy business.

Lastly, one of the quickest ways to have reduction in out-of-stocks is by empowering your staff to be more efficient and more flexible in the workplace.  Offering mobile workstations with a powerpack has change the game for companies around the world as well as WMS solutions.

About us:

Speak to one of our team to understand how Clarus’ WMS system can cost effectively support best practice warehouse management processes, better customer service and highly efficient working for a range of warehouse operations with pay per month options and no IT infrastructure needed.

Our platform can scale from a one user, small depot system to a 100’s of user distribution centre operation. The ClarusWMS platform will cost effectively scale with your business based on demand.

ClarusWMS is a UK based supplier of warehouse management solutions with a wealth of industry experience in third party logistics, wholesale / retail distribution, online fulfillment and manufacturing warehousing.

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