Fifteen Steps to Achieving Effective Inventory Management

by | Nov 15, 2024 | Best Practices, General

Fifteen Steps to Achieving Effective Inventory Management
By Jon and Matt Schreibfeder

The goal of effective inventory management is to meet or exceed your customers’ expectations of product availability with the amount of each stocked item that will maximize your organization’s profitability or minimize its inventory investment. Through our consulting services we develop custom plans for individual organizations and help them through the implementation of the program. Most of our programs follow the “EIM 15 Step Program”:

  1. Make sure that all material movement is properly recorded.
  2. Develop an approved stock list for each warehouse, storeroom or other stocking location. Separate the material that you want to stock from the stock that needs to be liquidated.
  3. Determine if the inventory of each stocked item in each location should normally be replenished with a purchase order from a vendor (if so which vendor) or transferred from another company location.
  4. Separate products to be stocked into items with sporadic usage and those with recurring usage
  5. Determine the typical sales or usage quantity for each item with sporadic usage.
  6. Set minimum and maximum stock quantities for items with sporadic usage based on a multiple of the typical quantity sold or used in one transaction.
  7. Determine the best forecast method for each item with recurring usage.
  8. Verify that the lead times for all items to be stocked are set to the longest normally anticipated lead time.
  9. Set safety stock quantities for each item to ensure that your company achieves the desired level of customer service.
  10. Calculate replenishment parameters for each item with recurring usage based on the forecast and safety stock quantities.
  11. Calculate the replenishment quantity of each item that will maximize your organization’s net profits.
  12. Determine turnover and profitability goals.
  13. Analyze possible unusual usage at the end of each month – Adjust usage history as necessary to correct for activity that probably will not reoccur.
  14. Organize the storage of inventory in your warehouse(s) and other stocking facilities in the most efficient possible manner.
  15. Measure your progress each month in achieving predetermined goals.

Throughout the upcoming year we will explore each of these 15 steps in our newsletters. In the meantime, please let us know if you would like our help in achieving your inventory-related objectives.