The impact of the COVID-19 pandemic on businesses has been swift as they struggle to recover their inventory levels. We know that maintaining an optimal level of inventory is critical for the survival of companies. For this reason, we have prepared this article for you on the importance of stock control, the main keys to managing stock levels, and inventory management companies.
Effect of the pandemic on stock levels
Contrary to what happens in most economic crises, the pandemic caused an inventory deficit among major global supply chains. And it is not for less, because, unlike other recessions, this time production stopped suddenly.
As restrictions are eased and the economic revival proceeds, demand for industrial products is soaring, but supply cannot keep up. Businesses reopened their doors with low inventory levels, relative to their orders.
The industries that did not suffer a drop in their production are food and health. Additionally, global supply chains are blocked by the hoarding carried out by some large companies. What they do is acquire basic inputs, to manage possible supply shocks.
Importance of inventory control
Whether you manage an SME or a transnational company, you surely agree with us: inventory control is a vital activity for any business, as it supports the purchase and sale of products and services.
Inventory control is the administration of raw materials and merchandise, through two major processes that companies need to carry out:
Inventory management
It is the daily and productive handling of merchandise, to respond to the needs of the company. For example, using barcodes, classifying stock, and properly distributing merchandise in the warehouse.
Inventory optimization
A step beyond management, optimizing your stock is to achieve the best possible financial results, reducing inventory costs. It involves calculation and analysis tasks, such as setting the reorder point and the minimum and maximum stock levels.
That said, let’s now see why you need to keep your stock levels adequate, both in times of crisis and in periods of economic growth.
Inventory levels and their impact on the business
Optimum stock is the number of goods a company needs to meet its demand, without stockouts and keeping warehouse costs to a minimum.
In other words, by determining the optimal amount of stock for each of your products, you avoid lost sales or opportunity costs, as well as excess product:
Opportunity cost: When a shopper doesn’t find the product they’re looking for in your store, you lose not only a sale but also a customer. Out-of-stocks send your customers into the arms of the competition.
Excess inventory: The other side of the coin is excess stock, which carries financial and logistics costs, as well as losses due to the loss of merchandise.
To determine your optimal inventory level, we share some recommendations.
Reset time
Depending on the types of inventories that exist, replacement times are variable. Calculate your parameters taking into account:
- The demand.
- The nature of the product.
- The industry.
- The production system (on request, batch, mass, or linear).
Determine your demand
Calculate the number of units you will need for each product, based on the evolution of demand over the years and seasonality. You can obtain this information from your historical sales reports, with the support of the logistics and accounting areas. You can rely on inventory management companies that generate these reports and graphs to help you compare sales by period and more accurately determine your expected demand.