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13 Tips To Optimize Inventory Management For Business

optimization tips for inventory management

The global rush for businesses to provide to the customer’s demand is what driving companies across the globe. With more and more businesses coming up in the market, the overall network for supply and demand becomes more complex and busy. This directly urges the business leaders to keep a keen eye on their inventory at every point of time to maintain operational fluency. The to and fro motion of the raw materials coming in, getting processed and delivering the final product to the end-users requires a high standard of collaboration, accuracy and maintains quality up to the expectations of the customers. This brings to an important attribute of supply chain management and optimizing inventory management. 

Why optimizing inventory management matters?

Business leaders often describe inventory management as the art of managing the inventory to ensure the continuous availability of raw materials and/or end products with a cost-effective approach towards lowering the overall investment while achieving a set service level goal for a large assortment of stock-keeping units (SKUs). 

The goal for which inventory management was added up as an essential vertical of supply chain management is to ensure better control for the managers over the supply and demand volatility in the market. There is a range of benefits that comes along with optimizing the inventory. It has been evidently presented by manufacturers and distributors, that optimizing the inventory and keeping a closed control enhanced the standard of the service and also resulted in cost cuts. 

With an increased level of service, customers get satisfied with the service easily giving a competitive advantage to the business. It further fuels a stronger and long term business relationship with the client. Optimizing the inventory to reduce unnecessary stocking definitely saves enough penny to impact the company’s total invested amount into supply chain management. 

The best 13 Tips to optimize your inventory    

Despite the best benefits that can come from optimizing the inventory, business leaders and managers often find themselves struggling while integrating inventory management and optimizations steps into their business. It is challenging to integrate optimizations solutions for inventory management that will collaborate with all other integral business operations. Here are the best 15 tips to be followed to optimize your inventory management to its highest levels. 

Optimizing MRO Inventory

To manage the optimal fluency in any operations, the Maintenance, Repair, and Overhaul sectors play a vital role. In the case of inventory MRO, businesses need to have a unique management approach that ensures high prices, critical times, invariable usage, high-quality data and quality of the stock. Optimizing the MRO sector will involve the frequent collection of real-time data that facilitates an easy decision-making process and operational continuity. The expected result out of the practice includes cutting down of enormous costs and invested funds, reduction of obsolete stocks, improved availability of production requirements, saving time,     

Criticality Analysis:

It is always important to plan the steps before implementing any management solutions into the existing business structure. As a analyze each and every attribute of the existing inventory management system to understand the strengths and potholes. Each and every stock item can be analyzed based on their application, classification of commodity, Supplier, and Price. The result would be an organized inventory with real-time data for each item in stock helping in easy deployment and decision-making process.

Demand Forecasting

Yet another gift of technology that makes things a lot more easier, Demand Forecasting refers to the science of evaluating a large real-time data set about the current state of supply and demand to evaluate the flow of demand in the future. In the course of implementing demand planner in order to optimize the current state of inventory management, select the most appropriate and needed algorithms that not only align with high demands but also works for low demands. The capability to predict the future based on the current inventory state allows business leaders to take essential steps to either be prepared for huge demand flow, increase productivity or deal with low demand surges.

Lead Time Forecasting

Predicting the time spent by each lead works as a key factor in optimizing the safety of the stocks. The process involves forecasting the average lead time by using the purchase history, eliminating unwanted data, and understand the lead timing at various service levels. All these data clubbed together gives a stronger framework to plan things ahead. Filtering and clipping techniques to organize and eliminate unwanted or vague data filtering the huge data sets for better business insights.

Issue Size Forecasting

The sample size of any delivery or the issue size is typically the essential factor in determining the quality and level of stocks. Utilizing the issue history and coordinating capabilities of override forecasting can greatly help in understanding the level of service. This can lead to optimized inventory management allowing the leaders and the procurement managers to make decisions. With the use of machine learning and advanced data analytics, calculating the issue size variables and variance will exceeding assist in utilizing important data at times of necessity.

Economic Modelling

Understanding the risk involved in any business operation always pays off through better decisions, judgments and planning ahead. Economic modeling throws in a duel benefit of preparing a solid investment structure along with identifying and preparing for any monetary risks that can fall ahead in time. 

This method of optimizing inventory management practices gradually involves the “what if” statements that typically raises several questions towards inventory trade-off. Economic modeling segregates the total cost or expense to be invested for the inventory management into several categories including replenishment costs, expediting freight costs, holding costs for different types of items, stock-out costs, etc. Once all the accounting information is organized in their own respective subcategories, the model compares existing and optimized results. This allows the business leaders to determine the inventory value, stock levels, service level, and a lot more.    

Optimization of Reordering Parameters

Replenishment items are one of the keys determining factors for optimal inventory outcomes. Calibrating the reordering and declining data to understand the flow reorders can result in a better inventory management outcome. It is easier to optimize the max and min stocking levels with proper selection of an appropriate algorithm. The process involves analyzing a large group of reorders instead of handling them one by one. Furthermore, if economic modeling is already included in the inventory management structure, it would allow understanding more in-depth analysis of the bin capacity, additional storage, and a lot more.

Exception Management

The exception management approach gives that surety that the inventory timings are mainly postulated towards the high valuation or the defective items. This is an efficient approach for larger and complex MRO inventories. The capabilities of this approach are as follows:

Segmentation of inventory

Inventory segmentation is based on a management body that compartmentalizes different management techniques for different items and their profiles:

Assessment of risk for spares

There are certain MRO inventories that have high spare proportions that are quite critical and have different disadvantageous elements like high-cost rate, minimum usage, and need for longer lead times. Managing such items can be very tricky and requires special attention and techniques:

The pooling of spares

The pooling of infrequent items or items with high valuation can result in a significant reduction in overall safety stock investment. Such arrangements can be facilitated by companies by following certain aspects: 

Capturing suitable knowledge

Before getting started with the actual process for the inventories, gathering proper knowledge about is a very important aspect in the business field. Without the proper knowledge, there is always a chance of mistakes that leads to re-investigations. Thus, companies should be very particular about the optimization of inventories and follow the steps:

Reporting of the inventory KPIs

It is very important to track the improvements in inventory progress and therefore inventory KPI reporting is essential as it helps in providing the record of accomplishment for the same. The reporting should include the following aspects:


In today’s competitive era, companies with intensive asset arrangements need to have a positive and optimistic outlook towards innovation and modernized technology. In such an era, technology is a very important aspect when it comes to any kind of business.

Without the technological support, companies are doomed to use manual processes, standard ERP functions of the system, and the ad hoc databases or spreadsheets that are most likely to slow down the progress considerably.  All these manual approaches are quite impossible to be sustained on a regular and repetitive basis. Above all, they are heavily prone to mistakes.

Find out 7 Ways ERP Benefits Logistics and Transportation

Proper optimization of business cannot guarantee success but it can go as far as to reduce the chances for failure. Good optimization of the inventory can assure the ultimate success. Maintain and optimizing inventory management will not only help your business grow but will also increase its credibility in the industry considerable. Achieving an optimized inventory system is easy when done with the right tools and with the right type of assistance.

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