FMCG Stock Management Practices

Inventory management methods help retailers generate maximum profits by reducing costs, improving efficiency and understanding sales drivers. These methods optimize quantities purchased from suppliers, fine-tune fulfilment processes, strategically locate products, account for inventory and analyze demand and sales patterns.

Inventory Management for Fast Moving Consumer Goods is in essence the same as for other retail goods. Due to the, so often, perishable nature of the goods as well as the speed at which it is sold, one would specifically focus on the following inventory management practices.

Manage the Economic Order Quantity

Economic order quantity, or EOQ, is a defining rule that determines the order quantity a supply chain business needs to purchase for its inventory. It helps to ensure that the correct amount of inventory is ordered per batch so the company does not have to make orders frequently and adjust space. To determine the economic order quantity, you need to look into a set of variables like total costs of production, demand rate, and other factors.

Use this formula to calculate the ideal order amount. The equation takes into account demand, ordering costs and carrying costs. Where D is demand in units, S represents ordering costs per order such as shipping, and H represents holding costs such as storage expense, the formula is:

EOQ = √ (2 × D × S / H)

Manage the Minimum Order Quantity

For suppliers, minimum order quantity (MOQ) is an important factor that helps to retain stable cash flow. It is the smallest amount of stock a supplier is willing to sell. The supplier won't sell the inventory if you don't have the money to buy the minimum stock.

MOQ retains profit margins for both retailers and suppliers. It will enhance security in cash flow and reduce freight costs. Retailers will get the inventories at a minimum price and it helps suppliers reduce their inventory management trouble.

Apply Just-in-Time Inventory Management

With this method, retailers receive new inventory exactly when they need it, rather than in advance. Japanese automakers pioneered this approach, which minimizes tying up capital in inventory and storage costs. JIT is easiest to implement with high-cost, low-volume goods like cars and appliances. The savings on low-margin, high-volume products, when compared to the risk of stock-outs, may not be enough to merit the extra complexity. An exact prediction of customers' requirements is necessary to replenish the shop with products that are in demand.

Consider having Safety Stock Inventory, Buffer Stock and Anticipatory Stock

Exploring the possibilities in safety stock, buffer stock, or anticipated stock can stop you from going out of stock. Let's see how it can help us deal with the various stock crises:

Safe stocks help you bring the amount of inventory needed to prevent stockouts and save you from demand uncertainty and lead time uncertainty.

Buffer stocks and safety stocks are almost similar. Both are surplus inventories maintained to mitigate unprecedented fluctuations in demand. Specifically, buffer stocks protect your customers from disruptions in delivery.

Anticipatory stock is also surplus inventory. But instead of compensating for uncertainty or shortfall in demand, it is all about preparing for seasonal or festival sales.

Safety stock is the amount of inventory you order to serve as a buffer to prevent running out of stock. You carry this additional quantity in case of incorrect sales forecasts or unexpected consumer demand. The following formula applies:

Par level = safety stock + the minimum inventory required to meet customer demand

If inventory falls below par level, it is time to reorder.

Apply the ABC Inventory Analysis Principles

ABC analysis (Always Better Control Method) determines the value of the inventory by looking into the impact it makes on business. ABC analysis helps simplify work for inventory managers.

Category A - Goods that have the highest value and are given special care and storage (in terms of annual consumption)

Category B - Goods that have a medium consumption rate. These are not as important as Category A.

Category C - Goods that have the lowest consumption value.

It helps to:

• Streamline pricing
• Boost inventory optimization
• Enhances inventory forecasting
• Facilitates strategic resource allocation
• Manages product lifecycle
• Reduces storage expenses
• Negotiate better

Click here to view a video that explains the stock management of perishable products.