4 Best Practices for More Efficient Stock Management

by Matt Osit May 18, 2016
May 18, 2016

If you’re a wholesale distribution or manufacturing company, efficiently managing stock is one of the biggest challenges your business faces. Stock management, sometimes also called inventory management, is the process of efficiently managing stock to ensure that your supply is enough to meet customer demand.


Stock management affects––and is affected by––a number of factors both within and outside your business, which is what makes it so challenging. Maintaining very low levels of stock doesn’t cost much, but jeopardizes customer relationships when you can’t meet demand. Maintaining high levels of stock would satisfy customers, but would not be profitable. Stock management is about finding a balance between the two.


Here are four best practices that we believe are among the most important for manufacturers and distributors who want to manage their stock better.


4 Stock Management Best Practices

1) Get an Accurate Count


It’s probably obvious, but the first step to effectively managing your stock is to know what you have to begin with. That is why getting a handle on current stock levels is vitally important. The challenge here is that for many companies, fulfilling orders tends to take a higher priority than making sure inventory counts remain accurate.


This is often an institutional problem that arises when an order is pushed through the system with numbers that are known to be inaccurate, but which someone intends to go back and fix later. Except…no one ever does, and before you know it, your counts are off.


Naturally, we want to make sure today’s customer is satisfied and the order gets out the door quickly. However, pushing orders through with inaccurate inventory numbers makes it more difficult to keep future customers happy, as we end up taking orders we can’t fill in the promised timelines. So it’s important to make accurate inventory counts a top priority.


2) Categorize Stock Logically


Effective stock management isn’t just about accurate counts, it’s also about managing stock in a way that is least costly for the company. We talked in a recent post about how to drive more efficiency from pick and pack processes by optimizing stock storage. The same advice applies here. Not only does optimizing stock storage improve the workflow in your warehouse, it also helps you to maintain more accurate inventory.


Many companies have stock randomly assigned around the warehouse, with any item assigned to any location that has enough space to hold it. But when stock is randomly assigned, it’s difficult to tell what is important and profitable stock and what is just “stuff” that’s costing you money. Moving to a more logical categorization and storage approach helps to gain better control of the inventory you have on hand so that you can differentiate between the two.


There are several approaches you can take to categorize stock; the one that is most likely to assist in more efficient stock management is the ABC method. It categorizes stock according to volume – items that sell most are classified as “A” and stored in one area, items that move more slowly are categorized as “B” and stored together. Your slowest moving, least profitable items are classed as a “C” and stored together until they can be liquidated.


3) Get a Handle on Demand


Many managers think that if they could just get a handle on future demand, then their inventory problems would be solved. Unfortunately, your forecasts are dependent on outside forces over which you have little control. That’s not to say demand forecasting isn’t important – it’s just less important than accurate counts and logical storage.


So which practices will help you get a better handle on demand? According to Gartner, finding a balance between statistical modeling and collaborative forecasting can help improve accountability of forecasts; this makes sense, because in addition to trying to predict future demand with whiz-bang technology, you will actually work collaboratively with customers and vendors to try to predict the actions they will take in the future.


Demand sensing and shaping are two other practices that can provide more accuracy to your demand forecasts. Demand sensing involves collecting and leveraging customer data in supply chain decisions. Demand shaping involves driving customer demand toward more profitable categories or specific products. This involves some level of collaboration between stock management and sales and marketing.


4) Learn From Your Mistakes


Once you’ve got an accurate handle on your inventory and have addressed how you approach demand forecasting, you’ll need to circle back with new information to figure out where you’ve missed the mark in your previous stock management efforts. Say you forecasted lots of demand for widget A, and not so much for widget B, yet things turned out exactly the opposite – you’ll want to figure out why.


In stock management parlance, this is called “root cause analysis,” and it should be done anytime you have slow moving or obsolete stock (also known as SLOB). Liquidate those SLOBs and determine why they ended up in your warehouse in the first place, in order to prevent them accumulating and reducing your efficiency and profitability.


What best practices is your organization following to be more efficient with your stock management? Let us know in the comments.

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