Effective inventory management is very important in manufacturing businesses to improve workflow and maintain cash flow. You need to maintain minimum stock levels to avoid disruptions in production. Maintaining the inventory minimum stock level also helps you reduce holding costs and avoid situations like stockouts and dead stock.
In this blog post we will learn about the best strategies to maintain the minimum stock level in inventory management so that you can improve demand management and increase your overall business profitability.
Understanding Minimum Stock Levels In Inventory Management
The minimum stock level in inventory management is the quantity of raw materials or finished goods available in warehouses when you need to order or manufacture new stocks. You need to maintain minimum levels of inventory items that are most needed for manufacturing and order fulfilment to avoid delays and lost sales.
You need to maintain minimum stock levels to avoid stockouts and overstocking so that you can use your money wisely and run your operations without interruptions. You can analyze your production targets and sales orders to maintain stock levels in accurate quantities.
Read Minimum Stock Level: Definition and Calculation for better understanding.
Challenges In Maintaining Minimum Stock Levels
Inventory management stock levels can be different for all types of materials and depend on your production requirements and sales orders. The main challenges in maintaining minimum stock levels are:
- Demand fluctuations
- Inaccurate inventory forecasting
- Limited cashflow
- Delayed production
- Supply delays
- Storage limitations
- Lead time
- Cost control
- Stockouts risk
- Overstocking issues
- Supplier reliability
- Production variability
- Inventory accuracy
You need to manage these issues based on your unique manufacturing requirements, otherwise, they can affect your production processes and cause downtime. Due to this, you may not be able to fulfil orders on time, which can reduce customers’ trust in your business. You should also analyze the changes in customer demands, suppliers’ performances, and your safety stock strategies to overcome these challenges and increase profitability.
Strategies For Optimizing Minimum Stock Levels
Manufacturing businesses require different types of raw materials to make finished goods. Thus, you should identify high-value products for which you should maintain stock levels at all times. Here are some effective strategies for optimizing minimum stock levels:
Accurate Demand Forecasting
You should analyze future demands to invest your money in the right raw materials and purchase them in accurate quantities. You can check previous data of procurement, production, and sales for accurate demand forecasting. You can also check market trends to increase or decrease the quantities of raw materials when buying to maintain minimum stock levels.
Just-In-Time (JIT) Inventory Management
Just-in-time (JIT) inventory management is a strategy to maintain optimal minimum stock levels. It helps you purchase raw materials at the time when needed for production.
For this, you need to predict accurate material requirements according to your production targets to maintain optimal stock levels and reduce excess inventory in your warehouse. It also helps you reduce warehouse costs and prevent deadstock.
ABC Analysis
ABC analysis is an inventory management technique that helps you categorize items according to their value.
In this technique, you put the most valuable materials in the A category, medium-value materials in the B category, and low-value items in the C category. It can improve your inventory management and help you invest your money in buying the right products.
Inventory Auditing and Adjustment
Regular audits help you analyze the efficiency of your warehouses and the performance of your inventory management. You can check your financial records and cross-check them with inventory records to identify errors and processes that can be improved to maintain minimum stock levels. You can also use techniques like FIFO and LIFO to improve your inventory management stock levels based on priority.
Best Practices For Maintaining Minimum Stock Levels
Your inventory management practices should be based on your production targets and demand rates to maintain minimum stock levels. Here are the best practices for maintaining optimal minimum stock levels in your manufacturing business.
Regular Inventory Audits
Regular inventory auditing helps you make sure that optimal minimum stock levels are maintained for each item when needed. It also helps you modify your strategies in real-time if needed to manage changes in demand. It improves visibility over your inventory costs so that you can improve processes and negotiations to save money.
Supplier Relationships
You should improve relationships with your suppliers to buy high-quality raw materials at the right prices. It helps you improve your supply chain management to maintain minimum stock levels.
You should also build good relationships with your alternative suppliers to get raw materials on time and avoid disruptions in the supply chain. You can also analyze the performance of your previous suppliers to select the right ones to procure the required materials.
Continuous Improvement
Understand your current processes of procurement, production, and inventory management. Follow the right strategies to maintain minimum stock levels that meet future trends. You can minimize manual efforts and adopt software solutions to reduce errors and waste in processes. It can help you identify opportunities for improvement and scale your business over time.
Calculating Minimum Stock Inventory Levels
You need to calculate minimum stock inventory levels for each item to improve your production processes and order fulfillment. Here is a step-by-step guide for that.
Basic Calculation Method
- Find out your inventory lead times by analyzing how many days your suppliers take to deliver your raw materials once they receive your purchase orders.
- Find out the average daily sales or uses of units for which you want to calculate the inventory minimum stock level.
- Use the formula: Minimum stock level = Average daily sales × Inventory lead time.
Advanced Techniques for Calculation
- Identify high-value raw materials through techniques like ABC analysis to keep their safety stock.
- Add the quantities of raw materials you want to store in safety stocks to the minimum stock level.
- You can use the formula: Safety stock = (Highest daily sales × Longest lead time) - (Average daily sales × Average lead time).
- You can use the economic order quantity (ECQ) method to maintain optimal minimum stock levels and control inventory costs.
- You can use the formula ECQ = √(2SD/H) where S = Order costs per unit, D = Demand rates, and H = Holding costs.
Tools and Technologies for Managing Minimum Stock Levels
The latest tools and technologies help you improve the whole manufacturing cycle and increase business productivity. The best tool to maintain minimum stock levels in your business is inventory management software.
It helps you track stock levels in real-time to improve your production planning and purchasing decisions. It also helps you to categorize raw materials in the warehouse according to their value, source of supply, and other criteria. You can also use different techniques such as LIFO, FIFO, JIT, EOQ, Safety Stock, and more for inventory management stock levels to improve operational efficiency.
Ease Your Optimal Minimum Stock Levels With TranZact
Minimum stock levels help you reduce inventory costs and improve production processes and order management. Strategies like demand forecasting, regular inventory audits, and improving relationships with suppliers help you maintain minimum stock levels. You can simplify all of this with TranZact.
It is an easy-to-use tool specially designed for SME manufacturers in India to help them improve inventory management and other manufacturing processes.
With TranZact, you can set minimum stock limits for each inventory item by assigning unique IDs. You can further use it to get alerts when reaching those limits via email and WhatsApp to automatically reorder on time.
Its inventory module allows you to register multiple warehouses and track stock levels of all items in real-time. It also helps you record details of multiple suppliers to evaluate their performances and buy your materials from the best ones.
Read How TranZact Can Help You Optimize Minimum Stock Levels And Reduce Costs
Implement TranZact in your manufacturing business in just 14 days and improve productivity!
FAQs
1. What are the minimum stock levels in inventory management?
The minimum stock levels in inventory management are the lowest quantities of materials that businesses should have in their warehouses to avoid stockouts and disruptions in production.
2. Why is it important to maintain optimal minimum stock levels?
It is important to maintain optimal minimum stock levels to avoid stockouts and overstocking, control inventory costs, and improve demand management.
3. What tools can help in maintaining and optimizing inventory stock levels?
Inventory management software can be the best tool to help you maintain and optimize inventory stock levels based on your unique requirements.
4. How can businesses calculate the minimum stock inventory levels?
Businesses can calculate the minimum stock inventory levels by using the following formula: Minimum stock levels = Average daily sales × Inventory lead times.
5. What strategies can be used to optimize minimum stock levels?
You can use many strategies to optimize minimum stock levels, such as demand forecasting, supplier evaluation, inventory auditing, and techniques like just-in-time and ABC analysis.
6. What challenges do companies face in maintaining minimum stock levels?
The common challenges companies face in maintaining minimum stock levels are demand fluctuations, naccurate inventory forecasting, limited cashflow and more.
