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Just Right: How to avoid being Overstocked or Out-of-Stock

This article looks at best practices for inventory management. It discusses the negative consequences of overstocking and understocking and provides tips on how to get inventory just right.

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There is a thin line between overstocking and understocking your inventory. If you have too much of a product that’s not selling, you are wasting shelf space and time. Alternatively, you want to make sure you have enough stock to meet customer demand. No business owner wants to risk losing projects, have longer turnaround times or otherwise disappoint customers due to understocking. 

To avoid both scenarios, you need to have proper control of what’s coming in and what’s going out of your stores. Moreover, you want to know what your customers want and whether you are adequately providing them with it. 

Reasons behind overstocking/understocking:

  • Bad processes 
  • Bad Training
  • Disconnected data
  • Supplier issues including pricing

How to get inventory Right

  1. Forecast Sales based on Historical Data – Great inventory management comes down to accurate demand forecasting. If you can predict sales, you can prepare accordingly.
  2. Listen to the market – Track search trends to assess demand for your overall product category. By monitoring buyers’ search habits, you can determine if general interest in your products is increasing or decreasing and then adjust inventory.
  3. Centralize Data – Avoid working on multiple spreadsheets, this will just get confusing. By monitoring stock from a single point, you can quickly determine when you need to restock inventory to fulfill orders.
  4. Apply ABC analysis. This allows you to prioritize your most important items.

A: High-value products that represent a small portion of the total inventory

B: Moderate-value products that represent a decent portion of the total inventory

C: Low-value products that represent the majority of the total inventory

5. Analyze inter-departmental communication. It is essential that your supply chain flow smoothly with as few errors as possible. This is only possible when different departments are talking to each other and know what’s going on. 

6. Analyze Vendor Relationships and determine if there is an issue with your suppliers.

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