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How to implement just-in-time inventory management

3-minute read

It’s among your worst fears—running out of inventory when your clients are hungry for your products.

And even though stocking up to meet customer demand may seem like a safer bet, holding too much inventory can eat into your working capital and profits.

For many businesses, the answer is just-in-time inventory management—ordering and receiving material close to the time it’s needed. This enables you to reduce inventory and the cost of carrying and storing goods.

Monitoring inventory is key

The key to just-in-time inventory management is rigorously monitoring your use of supplies and timing replacement deliveries when they are needed, says BDC Consultant Guy Chartrand, an operational efficiency expert.

“It’s a real balancing act,” says Chartrand, who advises clients in the Ottawa region. “You have to avoid running out of stock and upsetting your customers, while also minimizing your inventory costs.”

Technology can be a big help

If you’re still handling inventory manually, chances are you’re prone to errors and poor forecasts and have no means to measure supply and demand. The good news is that technology can solve these problems.

There are a variety of options available to help you manage inventory, ranging from a fully integrated Enterprise Resource Planning (ERP) systems to more affordable software products.

“You should automate as much as possible, but not all small businesses have the cash to buy sophisticated inventory technology,” Chartrand says. “At the minimum, you need a system that alerts you to reduced inventory levels so you can replenish them.”

Most businesses now use a system of stock keeping units. Also known as SKUs (pronounced “skews”), they are unique ID codes that you assign to every item on sale. They allows a seller to know what's in and what's not in stock—but, most importantly, what sells.

Important to reduce miscounts

“Inventory miscounts are also common at the receiving and order fulfillment stage, especially if you’re working manually,” he says. “Using electronic data interchange (EDI) and bar code scanning can help eliminate data entry errors.”

Larger businesses should work to sync their computer systems with those of suppliers who can then directly monitor inventory levels at factories, distribution centres or stores.

Here are some other tips on how to implement just-in-time inventory management.

1. Review your supply chain

Work to build strong, long-term relationships with suppliers. The goal is to work with companies you can rely on to deliver on time and that will go the extra mile to meet a tight schedule.

“It also helps to have multiple suppliers in nearby locations to reduce shipping time and costs,” Chartrand says.

2. Be transparent with your customers

Be upfront about how you manage inventory and your lead-time requirements to meet their orders. “You might feel you’ll lose a client if you can’t deliver on the spot. But if you have a quality product and good relationship with them, you’ll retain their loyalty.”

3. Get outside help on managing your supply chain

Just-in-time inventory management is just one step in increasing your company’s operational efficiency. Hire an expert to look at all aspects of your supply chain management and production processes.

Chartand says: “An outside perspective can help you assess your businesses processes and find ways to eliminate waste and improve how you do business.”

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