Inventory management is a key component of a distributor's own operations; it is not simply about using a generic system for inventory tracking or stocktaking. What is inventory management? Simply put, it is the distributor maintaining reasonable inventory levels of agency products, reducing the occurrence of soon-to-expire or expired products, and maintaining reasonable purchase quantities based on product flow speed and inventory levels.

Distributors/Manufacturers: Warehouse Management Drawbacks

  1. Inaccurate inventory control, with significant discrepancies during each stocktake;
  2. No basis for product stocking, leading to stockouts of fast-moving items and high inventory of slow-moving items, failing to reasonably control warehouse turnover rate;
  3. Poor coordination between warehouse, finance, and sales operations;
  4. Inability to deliver customer orders promptly and poor vehicle scheduling;
  5. When inventory discrepancies occur, there is no evidence to trace the cause;
  6. Poor management of product age, leading to many expired and soon-to-expire items in the warehouse;
  7. Damaged goods and normal products are mixed together;
  8. During outbound shipping, items are sent incorrectly, omitted, or duplicated.

Main Reasons for Poor Warehouse Management

  1. No rules or regulations for warehouse management; the warehouse is like a vegetable garden, with all personnel entering and exiting freely, and even many employees smoking inside;
  2. Management lacks awareness of warehouse management, leading by example in violating warehouse management systems and ignoring fire safety;
  3. Shipping without orders, meaning the warehouse releases goods without seeing the company's outbound order;
  4. Good and bad goods are not separated, leading to chaos inside the warehouse;
  5. Soon-to-expire and normal products are not properly separated;
  6. Returns are not handled promptly, and products that should be written off are not written off in a timely manner;
  7. Infrequent stocktakes, so when discrepancies occur, the time span is too long to trace the cause;
  8. Safety stock levels are not reasonably controlled, leading to shortages of needed items and excess of unneeded ones;
  9. No professional reports or analytical data; everything relies on the warehouse keeper's experience;
  10. Incoming goods procedures are not strict, unnecessarily increasing the amount of soon-to-expire products;
  11. Unclear warehouse management responsibilities and unclear rewards and penalties, leading to a lack of ownership awareness among employees;
  12. Weak sense of responsibility in shipping, with frequent errors, omissions, and duplicates, often not detected in time and lacking supervision.

Awakening the Sleeping 'Money' Through Inventory Management Know Current Inventory Levels: When accepting orders or during manufacturing and sales, companies must understand current inventory levels and decide production and operation policies based on inventory status to avoid failing to deliver on time. Reduce Inventory Costs: By managing the inventory process, keep inventory costs within a reasonable range and reduce costs arising from inventory. Accurately Reflect Inventory Value: During year-end settlement, companies must accurately calculate the value of inventory; otherwise, it can cause financial confusion and affect budget preparation.

Of course, different industries have different inventory priorities, so they need to be treated differently. The last step is to learn inventory management. Large enterprises often build their own warehouses to serve branches, but for small and medium-sized enterprises, this is clearly uneconomical. Here are five methods more suitable for small and medium-sized enterprises:

Product-Oriented to Customers: Communicate with customers to fully understand the types and quantities of goods they need, and through comparative analysis, develop accurate and detailed sales forecasts, and manufacture accordingly. Build Good Relationships with Suppliers: Cultivate long-term trusted suppliers to gain priority in obtaining materials and ensure delivery times. This way, companies do not need to hoard large amounts of goods to prevent shortages. Don't Fear Stockouts: Stockouts are not scary; they at least prove that the company is not incurring costs from excessive inventory. A company that never runs out of stock may simply be because it has piled up too much inventory. Sell Excess Inventory: Companies cannot guarantee that the quantities of all materials purchased are accurate. When there is a large surplus of materials that will not be used in the near future, consider selling them to other companies. Order at Critical Inventory Points: Continuously check the warehouse and only order when it is absolutely necessary, rather than ordering on a fixed schedule, to avoid piling up large amounts of materials.

Beware of Four Major Misconceptions in Warehouse Management Misconception 1: Binge Eating, Leading to Inventory Overstock Just as eating too much at once can cause indigestion and affect overall health, binge eating also occurs in inventory management. Main reasons include pressure from company targets, purchasing staff not understanding sales and inventory, acting on impulse, and buying large quantities of slow-selling products for small gains, causing poor turnover.

Just as indigestion affects other organs, overstock leads to a series of problems: first, it increases the cost of capital occupation, money that could have earned interest in the bank; second, it increases storage pressure, with warehouse managers complaining about lack of space and requesting external warehouses; third, it increases warehouse management costs, reducing picking speed and accuracy; fourth, there is a risk of loss for products with expiration dates.

To avoid overeating, you need to know your appetite. For inventory management, avoiding overstock requires knowing how much you can sell; sales forecasting is the most basic requirement. We should carefully analyze and forecast historical sales data rather than relying on rough impressions.

Just as we can't combine three meals into one, we can't place one large order to 'solve it once and for all.' Therefore, setting an appropriate order frequency is necessary. Of course, nothing is absolute; special situations require special treatment, such as holiday stocking, bulk purchasing to reduce procurement costs, or grabbing goods when suppliers have short-term shortages.

Additionally, we often think 'the supplier can take returns after overstocking,' but this only helps to a certain extent and should be used sparingly. It's like trying to 'vomit' after overeating—it's unpleasant and harmful to the body.

Misconception 2: Giving Up Eating for Fear of Choking, Entering a 'Starvation State' Sometimes people swing to the opposite extreme after binge eating—'giving up eating for fear of choking.' Often after forced or voluntary stocking, due to a series of adverse consequences, purchasing becomes cautious, wary of manufacturers' temptations and blandishments, and hesitant to make decisions about market demand. Many naturally think that reducing overstock means reducing orders and inventory, which often leads to stockouts. If the body is undernourished from prolonged hunger, it leads to malnutrition and reduced physical activity. Insufficient supply leads to lost business opportunities, reduced customer satisfaction, and inevitably declining sales performance.

How to avoid stockouts? I think it's still about forecasting sales, then ordering on regular products using the '1.5 times principle,' and for holiday promotions in stores, maintaining close contact with the manufacturer's key accounts, stocking up on promotional products two months in advance. Establish KA reserve inventory, with purchasing and in-store promoters proposing a relatively reasonable purchase target based on historical data and relevant manufacturer information.

Misconception 3: Picky Eating, Leading to 'Hidden Hunger' Eating should not just be about being full; it should also be about eating well and avoiding picky eating. For example, excessive intake of animal foods and fats, low and overly refined grain consumption, and insufficient intake of micronutrients like calcium, iron, vitamins A and C, can lead to obesity and indirectly cause hypertension, hyperlipidemia, diabetes, etc. Inventory management also requires 'balanced diet and nutrition,' which is the rationality of inventory structure. This mainly involves the detailed management of purchased products.

This requires more detailed category management in inventory management. Sales forecasting should not just be about overall sales volume; it should be further subdivided. If you are responsible for many SKUs, you can plan inventory structure by sub-category; if the number of SKUs is small, you can even break it down to individual SKUs.

A more advanced method currently is the ABC inventory management method, which is essentially the application of the 80:20 rule in warehouse management, allocating 80% of funds to the top 20% of best-selling categories.

The ABC inventory classification management method divides inventory items into three levels based on variety and capital occupation: particularly important inventory (A), generally important inventory (B), and unimportant inventory (C), and then manages and controls each level differently. Find the critical few and the trivial many. A-class items, with a variety ratio of 10% and annual consumption value ratio of 70%, require key management. B-class items, with a variety ratio of 20% and annual consumption value ratio of 20%, require routine management. C-class items, with a variety ratio of 70% and annual consumption value ratio of 10%, are the part that needs simplification and general management.

Misconception 4: Not Timely 'Detoxifying and Nourishing' In inventory management, we often encounter unsalable goods, damaged goods, or sub-healthy products. These are the garbage of inventory management. They often become stagnant inventory, accumulating in the warehouse for a long time. The biggest factor affecting our inventory turnover is often this stagnant inventory.

Ancient Chinese health practices emphasize 'detoxification and nourishment.' If the body does not excrete waste for a long time, toxins accumulate significantly, causing acne on the face in mild cases, and potentially uremia or rectal cancer in severe cases! Similarly, if stagnant inventory is not handled promptly, it can become a 'cancer' for the company's operations.

To detoxify, you must know the concept of 'inventory age.' People have age, and inventory products have inventory age. The longer they sit in the warehouse, the more their value depreciates. Generally, warehouse management has the concept of 'first in, first out.' Products have different inventory ages depending on the category from the date of entry.

Therefore, a regular inventory age warning mechanism is very necessary. Warehouse staff should regularly issue a warning list for products exceeding their inventory age. If a product exceeds its inventory age, immediately activate the product handling mechanism, which requires proper coordination between management and finance. Make proper product depreciation.

The above four misconceptions are common warehouse management issues. Different industries have slight differences in management methods, but the key to avoiding these four misconceptions is only one: making scientific sales forecasts.

Source: Distributor's Home, Cigarette and Liquor Store Business Tips -END-