What Are The Best Practices For Inventory Handling In Procurement?
“Ready, set, go! The procurement process starts with inventory handling. Whether you’re a seasoned pro or just starting out in the world of purchasing and supply chain management, one thing is certain – properly managing your inventory is critical to ensuring smooth operations and maximizing profits. In this blog post, we’ll explore the best practices for inventory handling in procurement so that you can streamline your processes and achieve success.”
What is inventory?
Inventory can be defined as a collection of items that are used in a business or organization. The inventory can be divided into two main categories: stock and assets. Stock is the inventory that is used to produce products or services, while assets are the inventory that is used to support the operations of the business or organization. There are many different types of inventory, but the most common are raw materials, finished goods, and work-in-progress (WIP).
Raw materials are the unprocessed inputs that are used to produce products or services. Raw materials can include items such as metal ores, lumber, petroleum, and grains. Finished goods are the complete products or services that are ready to be sold to customers. Work-in-progress (WIP) is inventory that is currently being worked on and is not yet completed. WIP can include items such as unfinished products, partially completed products, and components that will be used to make finished products.
The different types of inventory
There are four main types of inventory: raw materials, work-in-progress (WIP), finished goods, and maintenance, repair, and operations (MRO).
Raw materials are the unprocessed inputs that will be used to create a finished product. This could include items like lumber, steel, fabric, or chemicals.
Work-in-progress (WIP) inventory is partially completed products that are still in the production process. This might include items that have been cut and shaped but not yet assembled, or products that have had some steps completed but are not yet ready for sale.
Finished goods are completed products that are ready to be sold or shipped to customers. This would include items like clothes, furniture, electronics, or packaged food. Maintenance, repair, and operations (MRO) inventory consists of the parts and supplies needed to keep machinery and equipment running smoothly. This might include items like replacement parts, tools, light bulbs, or cleaning supplies.
How to handle inventory in procurement
Procurement is the process of acquiring goods or services. It includes the activities of buying, sourcing, and managing suppliers. Inventory management is a critical part of procurement.
The goal of inventory management is to ensure that the right level of inventory is maintained to meet customer demand. This can be a challenge, as too much inventory can tie up working capital and lead to stockouts, while too little inventory can result in lost sales.
There are a number of best practices for inventory handling in procurement:
1. Establish an accurate forecast: An accurate demand forecast is essential for effective inventory management. The forecast should take into account factors such as seasonality, promotions, and new product launches.
2. Use data-driven decision making: Data should be used to inform all decisions related to inventory levels, including how much safety stock to maintain and when to place orders with suppliers.
3. Automate where possible: Automating purchase orders and other aspects of the procurement process can help free up time for more strategic tasks such as supplier management and contract negotiation.
4. Manage supplier relationships: Maintaining good relationships with suppliers is essential for keeping prices down and ensuring on-time delivery of products and materials.
The benefits of proper inventory handling
The benefits of proper inventory handling include reducing the cost of inventory, improving customer satisfaction, and reducing the risk of stock outs.
Inventory costs can account for a large portion of a company’s budget, so it is important to minimize these costs whenever possible. One way to do this is by proper inventory handling. This includes techniques such as cycle counting and order batching. Cycle counting is a method of tracking inventory levels that involves taking physical counts on a regular basis. This helps to identify errors and discrepancies quickly so that they can be corrected. Order batching is another technique that can be used to reduce inventory costs. This involves grouping together orders for similar products so that they can be shipped together. This reduces the number of individual shipments and the associated shipping costs.
Improving customer satisfaction is another important benefit of proper inventory handling. Customers are more likely to be satisfied when they receive their orders promptly and without delays. When there are stock outs, it can cause frustration and inconvenience for customers. Proper inventory management will help to avoid these situations.
Reducing the risk of stock outs is also a key benefit of proper inventory handling. Stock outs can occur when products are not available to meet customer demand. This can result in lost sales and damage to a company’s reputation. By keeping accurate records of inventory levels and implementing effective reordering procedures, stock outs can be prevented.
Conclusion
As you can see, there are many best practices when it comes to inventory handling in procurement. Utilizing the right strategies can help streamline operations and ensure that all items are accounted for. By understanding the benefits of stock rotation, utilizing technology, and understanding the importance of tracking data related to movement and storage, businesses will be able to maximize their inventory efficiency and maintain profitability.