Inventory organization refers to the arrangement of inventory items in a physical space. Having items properly organized enables businesses to accurately gauge stock levels at all times. Without inventory records, there is a higher chance of losing track of what’s available and what needs to be ordered. In this way, having proper inventory organization enables businesses to take informed procurement decisions.
Failure to organize inventory in the right manner can result in untimely stockouts, delayed operations and higher procurement costs. Without a system to organize inventory, there is no way to tell how long the current stock will last, leading to outages. As a consequence, last minute procurement decisions can amount to higher costs to cater to urgent orders.
In this article, we will explore some important factors to consider when organizing inventory, then move on to tools, guidelines and best practices for inventory organization.
How to get started with inventory organization
While placing inventory items in a warehouse or storage area, it is important to categorize them. Businesses can create different inventory categories such as consumables, safety stock, obsolete and high value capital items. Organizing inventory in such a manner enables businesses to implement inventory control and management strategies in a successful way.
While organizing your inventory, there are a couple of factors to consider that will ensure the desired outcomes. Let’s look at some critical aspects of inventory organization:
Understanding your inventory: Depending on the industry requirements, there will be specific characteristics of your inventory. Knowing details such as demand patterns, turn over rates and storage guidelines will help lay out the basics of the inventory management processes.
Warehouse placement: When placing inventory in storage, make an effort to optimize the available space. A simple rule to store inventory is to consider the size and weight of items, frequency of use, and safety requirements.
Workflow accessibility: High demand inventory items should be placed where they are easily accessible as compared to rarely used items.
Flexibility: In order to accommodate seasonal demand changes, certain inventory items must be more accessible at a particular time. Other than this, stock should be easily moveable to meet changes in trends.
Scalability: The current organizational structure for your inventory should be capable of expansion in case the business decides to scale up a product line. This will prevent the hassle of shifting systems to cater to growing demands.
Benefits of inventory organization
Having inventory items set up in an organized manner makes them accessible to employees–improving task efficiency and productivity. Here are some ways inventory organization can help a business:
Optimal stock levels
Arranging inventory in the storage area according to the relevant categories and sub divisions makes it easier to record stock quantities. This way admins can avoid overstocking and understocking to maintain optimal inventory levels at all times.
Effective demand planning
With an accurate record of in-stock inventory items, businesses can generate demand forecasts for the next procurement cycle. Seasonal inventory can also be accounted for while placing new orders due to valid data at hand.
Excess inventory ties up resources and finances that could have been used elsewhere. In addition to this, storage costs are an added expense. By keeping stock organized, a well planned inventory management system enables businesses to cut down on unnecessary expenses.
Tools to organize inventory for your business
Organizations have a wide variety of inventory management tools to choose from ranging from simple barcode scanners to full-fledged cloud-based tracking systems. The exact requirements can differ based upon the inventory needs of the industry. Let’s look at some common methods used to organize inventory:
Inventory management software: Built with advanced technology and based in the cloud, this solution enables firms to track, record and analyze inventory throughout its lifecycle. The inventory management software offers a scanning system, integration with other software, and real time insights.
Spreadsheets: For small businesses with basic needs, a low cost option to organize inventory is through Excel sheets. These sheets can be used to organize stock counts, movements and utilization without delving into complex technical details. However, a simple excel spreadsheet is prone to human error and a source of siloed data.
Shelving and racking systems: Inventory can also be sorted using physical organization tools such as shelving units, bins and racks. These can be used in combination with a software or Excel program.
7 Ways to organize inventory for your storage unit
According to research, item tagging increases inventory accuracy from 63% to a whopping 95%. This suggests that advanced technological solutions improve efficiency in inventory management, while mitigating chances of human error. In order to achieve this, businesses can define a suitable inventory process for improving workflows. Here are some steps to set up an inventory organization plan:
1. Select an inventory organization system
A system dedicated to record inventory details can help streamline information, and stay up to date with seasonal demand changes. An automated management solution reduces human error and increases accuracy for optimal results. Determine the budget, features, and tracking mechanisms that work best for your business.
The simplest software offers barcode tracking that works for almost all sorts of businesses. If you have advanced needs, then look for RFID. It is important to check for integrations if your business works with multiple systems. Customizations are a great added benefit along with the ability to scale.
2. Populate records
Given that you have the inventory items at hand, you can start listing them in your selected system. A quick way to do so is to use a labeling system to allot barcodes or QR codes to all the items in stock. Then you can simply scan the tags and place them in the storage space.
Doing so enables you to set up a system which can then be monitored as inventory grows over time.
Having an automated scanning system with barcodes or QR codes improves data accuracy and ensures all information is recorded in real time. Every time a stock item is taken out, the barcode can be scanned to update the system automatically. This practice eliminates manual data entry which is prone to errors over time.
3. Define a layout plan
Now that you have entered all the inventory items in your system, the next step is to devise an efficient layout plan for placement. Focus on implementing a layout that accommodates all steps from receiving goods from vendors to storage and finally consumption. Make sure that both staff and equipment can move around easily with the warehouse.
When it comes to inventory organization, it is important to use suitable shelving and storage solutions. Select the shelving process that adapts to the type of inventory you use and has the ability to scale throughout the years.
4. Apply inventory organization techniques
The best way to organize inventory is to shortlist a few techniques that help with placement and consumption. These techniques define the order in which items should be utilized depending on the nature of the business. Some common ones include:
LIFO (Last in first out): This method assumes that the last inventory unit acquired is the first one to be sold or consumed. While this method is not widely used, it is convenient for firms as it allows them to use the recently placed stock first.
FIFO (First in first out): This method assumes that the inventory first acquired should be sold or utilized first. FIFO is a popular method since it is based on the principle that older stock must be finished off first – especially for perishable items and consumables.
Whatever method is used by a business, ensure it is followed throughout the inventory cycle for a seamless management experience.
5. Set location-based thresholds
Managing inventory at multiple locations can cause confusion if the right guidelines are not being followed. One way to streamline this process is to define location-based thresholds for each storage area. Doing so will empower teams with greater control on stock management and ensure all purchases always remain in budget and according to demand.
For all relevant storage units, use the inventory tracking system to set up minimum and maximum threshold levels for each location. When this is set up, an alert will be sent every time stock falls below or exceeds the limits. This notification will help the admins take the necessary actions to prevent stockouts or overstocking.
6. Automate procurement
An inventory management system helps businesses automate the procurement process so that inventory is maintained at optimal levels at all times. This can be done by populating the details of all reliable vendors in the system. Any relevant checklists, documents or purchasing guidelines can be attached in the same place to inform employees while making a purchase request.
With an automated inventory system, the purchase request is first reviewed then approved. Such practices ensure that all purchased inventory falls within the approved criteria and budget. This leads to an efficient procurement process, without any hurdles that could have caused a delay in the purchase of urgent inventory items. When all items are readily available, inventory organization is faster and convenient.
7. Run inventory reports
Data-based reports in an inventory management system can provide insights into stock utilization and demand. A stock level report includes information on the current quantities highlighting any items that are over or under stocked.
Access to these reports can help streamline inventory organization at the storage facility. Overstocked items can be tying up resources unnecessarily that can be used somewhere else. While under-stocked items can hold up operations if not restocked at the right time.
Other than this, reports can be used to generate trends in inventory consumption. Such information enables admins to plan inventory procurement accurately without posing delays in operations. In addition to this, reports can be used to standardize reorder points which helps in maintaining seamless operations throughout the year.
Inventory organization best practices for your business
To maintain a successful inventory management process, businesses can implement a few best practices. Here are a couple of ideas to organize inventory for your business:
Streamline receiving processes
With a lot of orders coming in every day, it can be challenging to manage and organize items in your warehouse. To avoid haphazard placement, the receiving process needs to be planned out efficiently. The best way to manage inventory is to create a checklist that should be followed during the receiving process– as soon as the stock is delivered. Here are some important tasks to put in the list:
- Reconcile the shipment against the purchase order
- Document the quantity and condition of the received items
- Tag and scan it into the inventory management system
- Sort and place the stock in the warehouse
Track storage capacity
Warehouse capacity plays a vital role in determining the amount of inventory you can order. Without this information, businesses run a high risk of ordering too much or too little inventory. So as a first step, calculate the stock quantities you require in a specific time period.
Next calculate the turnover rate for your inventory. Perishable items have a higher turn over and would need to be restocked more frequently. Other than this, generate a report about the inventory utilized in the past year. This will give an idea about approximately how much storage space you will be needing.
Also take a look at the current quantities added in the inventory management system. Compare it with the past years and establish whether you would need a bigger storage space.
Use safety stock
Safety stock usually acts as a buffer to help deal with uncertain situations such as excess demand, delays in delivery, and order placement. A substantial amount of safety stock mitigates the risks associated with stock outs till inventory can be arranged. There is a set level of inventory that can be categorized as safety stock.
Run regular audits
To keep an accurate count of stock quantities at all times, businesses can carry out physical inventory audits. This can simply be done with the help of a handheld barcode scanner to reconcile the records populated in the inventory management system.
Audits can be categorized according to the number of storage locations to ensure all areas are accounted for. Frequent audits help clean out damaged or lost items to reflect the accurate financial value of inventory.
Using an inventory management software
Setting up inventory in a warehouse involves multiple steps such as receiving goods, labeling items, maintaining records and optimizing layouts. All these steps can be carried out efficiently by using inventory management software.
A cloud-based software offers barcode tagging that enables businesses to quickly update and enter all inventory details into their systems. Other useful features include vendor management, reports and location tracking. Automate inventory organization for a smooth and convenient experience!
Frequently Asked Questions (FAQs)
What is inventory organization?
Inventory organization refers to the placement of inventory items in a storage area. Businesses can consider type of inventory, frequency of usage and ease of access while organizing inventory.
What is the best way to organize inventory?
The best way to organize inventory is to opt for an automated inventory management system that records all items with the help of a barcode scanner. An automated solution minimizes human error, provides real time updates and insightful data analytics.
Why is organizing inventory important?
Inventory organization can help businesses quickly assess the number of items they have in stock. Without an accurate record of inventory, businesses can buy too little or too much stock tying up resources unnecessarily and wasting storage space.