Are you ready to maximize your profits and protect your business from unwanted losses? The key is in stock management.
Proper management of your stock will help you maintain the balance between the units available in your inventory and your demand levels.
If the management is not adequate, there could be a stock-out and lost sales. Or that the value of your inventory is reduced due to obsolescence in your items.
So, how can we know if our stock management is efficient and what control mechanisms are in place? You will find all the information in this article.
What is stock management – definition
Stock management is the discipline in charge of planning, regulating and monitoring the flow of goods, products and merchandise in a company’s inventory.
It includes tasks such as location assignment, inventory traceability, and stock management methods. It is also common to include activities such as requirements planning and improving storage and order picking processes.
In short, we can say that stock management is an activity that is structured around three different axes: control, monitoring and optimisation.
The Golden Rule in Stock Control
Perfect stock management adapts to the right frequency of stock replenishment activities, keeping costs as low as possible without compromising profitability and growth.
Main objectives of stock management
Ensure a good level of stock
The main objective of stock management is to know the available stock and adjust it to future sales. This is essential to cover purchase requests and reduce maintenance and procurement costs.
Increase efficiency
Keeping track of stocks and their internal movement will speed up the rest of the processes linked to it and reduce the number of errors. A very common example is returns that occur due to confusing the product of the order.
Increase flexibility
Companies that manage their stocks well will be able to adapt better to changes in demand and new product availability.
Increase customer satisfaction
Stock management allows you to offer a higher quality ordering experience. In addition, by meeting the customer’s purchasing needs, they are more likely to visit you in the future.
Improve decision-making
How often do you have to schedule another replenishment? What is the time of year with the most aggressive demand curve? Which products are the most in demand?
Having accurate data on the movement of stocks is the only way to adjust business decisions to reality and avoid opinions or subjectivities.
Factors involved in stock management
Level of demand
The level of demand determines the frequency of product turnover. A company must be very clear about the pace of sales and consumption in its sector in order to acquire the exact amount of stock. This way you can cover the needs of your customers without having a surplus.
The Registry
To keep an accurate record of inventory levels and automate replenishment processes, it is essential to have an effective inventory tracking system in place.
This system must be able to track and update inventory levels in real time, as well as generate automatic alerts when more goods need to be ordered.
The type of stock
The type of stock will affect the management model, the location of the units, and the replenishment policies. Generally, stocks are classified according to the function of the products they contain. The most important are:
- Dead stock: This is a type of inventory that is used to hold products that can no longer be sold and are usually disposed of
- Cyclical stock: here products are classified according to the demand cycle. It can vary quite a bit depending on the type of customer, the industry or the time of consumption
- Minimum stock: determines the minimum stock level, those emergency products that we keep so as not to lose sales
- Maximum stock: determines the maximum level of stock that the company can sell. Exceeding this number of products in inventory could raise costs and be a problem in the future
- Safety stock: this type of stock is used only when we believe that there may be a one-off increase in demand
- Surplus stock: accumulated products that cannot be sold, but could be used in the future, so it is advisable to keep them
Storage costs
Each business must face different types of costs. This can vary depending on the sector, the nature of the product, the type of warehouse, etc. When you are going to carry out your stock management strategy, you must take into account all these variables to ensure profitable processes.
- Infrastructure cost: this is the cost of all the infrastructure necessary to maintain the warehouse, such as the premises themselves, shelves or machinery
- Management cost: the cost of resources allocated to direct stock management, such as labour
- Cost of maintaining stock: this is the expense of acquiring stock and supply materials, as well as the cost of insurance and problems arising from stock-outs
Better stock or inventory management methods
FIFO
This model prioritizes the issue of goods based on the order of entry. The first stocks to come in will be the first to come out.
When is this stock management model chosen? Normally when marketing perishable products that cannot be in inventory for too long a period.
LIFO
The LIFO system works in reverse of FIFO. The first products to come out are the last to come in.
In what cases is this management model useful? In companies that are looking to mitigate the effects of inflation or that need a more accurate view of their total costs.
ABC Method
The ABC method in warehouses is a system of classifying goods according to their value or profit. The most valuable units will be classified as “A” and placed in privileged sites for a much more agile expedition.
When to use this model? It is useful for companies in any sector with significant inventories and that want to optimize their internal resources.
Just in Time
Just in Time is the stock management system whose objective is to have the exact number of stocks to dispose of incoming orders, but without producing a surplus.
This model is used by those companies that want to prioritize reducing the cost of storage.
Wilson Model
The Wilson model uses a mathematical method to calculate the exact moment to contact the supplier to purchase more stock.
To perform the calculation, it takes into account the following variables: optimal order quantity, product demand, order cost, and storage cost per unit in a specific period of time.
This stock and stock management model seeks to balance warehouse costs with the demand and possibility of the products.
How to manage stock in a warehouse step by step
- Analyze your demand
Perform a demand analysis and create sales forecasts that help you determine the amount of stock you will need in the future. To do this, we recommend that you analyze your current demand and take into account the future sales history.
- Identifies and classifies each product
You must determine which products will make up your stock and register them in your computer system. Add a barcode to each product with its data and characteristics. This will help you keep the record up to date, as well as with the picking and packing processes.
- Locate each unit in inventory
In this phase you have to place each stock based on one of the strategies in the previous point. It’s important that you choose each location according to the needs of your stock type, demand analysis, and your business goals.
- Establish relocation and replenishment criteria
Stock policies determine when the right time is to relocate or restock. It is advisable that there are always minimum levels of stock.
Some factors that should be considered when establishing these policies include the speed of inventory turnover.
In addition, you will need to take into account the demand forecasts and delivery times of your suppliers. Consider leaving a safety margin to avoid a stockout.
- Monitor your inventory
Continuously track all movements within stock. You will need to have an up-to-date record of all check-ins and check-outs.
You can automate this entire process with some specialized computer software. There are tools that also warn you when the available stock reaches a critical level.
- Optimize your warehouse processes
A good way to improve business profits is to optimize internal logistics. And this includes stock management.
Some tips:
- Store products efficiently to make the most of usable space
- Reduce the space between items that typically come together to speed up picking and minimize costs
- Locate fast-moving products near packaging areas
- Conduct ongoing assessments
Monitoring inventory management processes is essential to detect problems and opportunities for improvement.
Use evaluation criteria to improve operations. This includes monitoring lead time, stock level, and efficiency in product management or order picking.
Bengochea, D. (Feb 2, 2023) What is stock management https://outvio.com/es/blog/gestion-de-stock/
