Inventory management is one of the areas with the potential to keep small business owners awake at night. In fact, small business inventory management, if not done right, can cost you a lot of money every month, adding up to huge losses at the end of the year.
But plenty of answers to this problem are available nowadays for all those who are interested. Depending on the size and characteristics of your business and inventory, there are several strategies you can apply to your small business inventory management to maximize your profits and cut your losses.
And cutting losses is exactly what we’ll focus on today. We’re going to talk about lean inventory management, an inventory management concept made popular by Toyota.
What is Lean Inventory Management?
Lean Inventory Management works exactly the way it sounds. Its main goal is to cut down on the excess and stick to what is essential. In trying to reduce the amount of stock you keep at any time, it also reduces the time and effort spent managing that same stock.
The main difficulty with lean inventory management is finding the right balance between eliminating what is not needed and keeping what is essential.
Principles of Lean Inventory Management
Lean inventory management, and particularly the Toyota Production System (TPS), is built upon several principles that can be divided into 4 main areas: philosophy, process, people and partners, and problem-solving.
We’re going to take a look at what these principles are and some ways they can be applied to small business inventory management.
- Respect Your Company’s Long-Term Philosophy
Every decision you take regarding your small business inventory management should be taken with a long-term vision in mind. You should believe in this long-term vision and never forsake it, even if it means having some short-term losses.
If you abandon this perspective for the sake of short-term gains, then you’ll never be able to apply the other principles successfully.
- Identify the Activities That Bring Value to the Company
Lean manufacturing identifies seven factors as Non-Value Added activities, and these are commonly known as The Seven Wastes. As you would expect, excess or useless inventory is one of these factors.
You should assess your business’ activities and make sure that every one of them is a Value-Added activity, instead of a Non-Value Added activity. This includes your small business inventory management. Recognizing that there is a problem with your inventory is the first step to changing the way you approach it.
- Use a Pull System to Avoid Excess Inventory
The basis of a pull inventory system is that inventory is only moved when a customer order is placed. One of the most popular implementations of a pull system is the Just-In-Time (JIT) technique.
The goal of JIT is to reduce safety stock to a minimum, or even eliminate it altogether, and ordering just enough stock to meet customer demands. This approach has its risks, but it greatly reduces the cost of holding and maintaining inventory.
- Level the Workload of Your Staff
Lean inventory management means not only cutting excess inventory but also cutting excess workload of your employees. Make sure the staff are not overburdened with work and are sharing the workload evenly. This will make them work more efficiently and reduce the risk of human errors.
- Use Accurate Inventory Control Software
A modern inventory management system is a great way to assist your employees in their work without replacing them entirely. For a complete solution, choose a system that features a mobile inventory app and a sales forecasting app, integrates with e-commerce platforms, and synchronizes data in real-time. Our suggestion is DataQlick.
People and Partners
- Build a Good Relationship with Your Suppliers
This point is important whether you are adopting a lean inventory management or not, but it is even more so with the use of a pull system. Since your supplier orders depend on customer orders, you’ll need the shipments to arrive on short notice and in a consistent, reliable manner.
The best way to achieve this is to become partners with your suppliers and share your company’s strategy with them. You’ll then be able to make decisions together and decide on the best course of action to achieve your common goals.
- See the Problems for Yourself
This is what the Japanese call Genchi Genbutsu. The idea is that, when your inventory has a serious problem, you should take matters into your own hands, investigate the source of the problem and figure out the best course of action to solve it.
- Strive for Constant Improvement
The Japanese term for improvement is Kaizen. We’ve given you several tips regarding lean inventory management, but there is always more you can do! Keep building on your company’s process, and slowly but surely, your business is bound to improve.