1. FIFO (First In, First Out)
This method ensures that the oldest inventory items are sold or used first. It minimizes spoilage and obsolescence, providing an accurate reflection of inventory costs. Common in perishable goods industries.
2. LIFO (Last In, First Out)
With LIFO, the most recently acquired inventory is sold first. This method can reduce taxable income in times of inflation by assigning higher costs to cost of goods sold.
3. Just-In-Time (JIT)
JIT is a lean inventory approach where products are ordered and received just as they are needed for production or sale, minimizing storage costs and waste. It demands precise demand forecasting and reliable suppliers.
4. Economic Order Quantity (EOQ)
EOQ calculates the optimal inventory order size that minimizes the combined costs of ordering and holding stock. This method balances the trade-off between these costs for efficient inventory control.
5. ABC Analysis
ABC Analysis categorizes inventory into three groups based on value and importance:
A: High value, low quantity
B: Moderate value and quantity
C: Low value, high quantity
This helps prioritize inventory management efforts and resources on the most critical items.
6. Cycle Counting
This technique involves regularly scheduled physical counts of inventory subsets to ensure accuracy in records and to catch discrepancies early without the disruption of full inventories.
7. Average Costing
This method assigns an average cost to inventory items based on total cost divided by total units, smoothing out price fluctuations over time for accounting purposes.
8. Perpetual Inventory System
Using technology and software, this system continuously tracks inventory transactions in real-time, helping businesses maintain accurate inventory levels and respond quickly to stock needs.
Additional Techniques
Safety Stock: Holding extra inventory to prevent stockouts due to demand surges or supply delays.
Material Requirements Planning (MRP): Planning inventory needs based on production schedules and sales forecasts.
Dropshipping & Vendor-Managed Inventory: Outsourcing inventory management or shipping directly from suppliers to customers to reduce holding costs.
Choosing the right inventory management method depends on your specific business model, product types, and operational priorities. Implementing the appropriate method can lead to reduced overhead, increased efficiency, and higher customer satisfaction.
Use these methods to optimize your stock control and keep your business running smoothly!
