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Inventory Management
Septemeber 8, 2023
Francisca Silva
11 min read
Table of Contents
Perishable inventory, often referred to as perishable stock, encompasses products that undergo expiration or devaluation over time, rendering them ultimately worthless. This perishability manifests in various ways:
The inherent risk associated with perishable inventory lies in the potential for unsold items to expire with no residual value, resulting in a loss of investment and missed opportunities.
While “perishable inventory” and “perishable stock” are often used interchangeably, they do not always signify the same concept.
Perishable stock typically denotes goods that can be stocked, such as floral bouquets and yogurt.
In contrast, items like rounds of golf and hotel nights are considered perishable inventory but cannot be stored in a refrigerated warehouse like yogurt.
It’s worth noting that not all perishable inventory follows traditional expiration patterns. For instance, in the case of theater seats, buyers seek the heart itself before the curtain rises, not the ticket. Additionally, even durable goods, usually classified as non-perishable, can lose value over time due to degradation or obsolescence.
Determining whether a product is perishable involves assessing the degree of perishability, as there are varying levels. Businesses that cannot carry inventory forward effectively, whether early, quarterly, monthly, or daily. Moreover, it’s crucial to recognize that perishability can arise naturally, such as the unsafe consumption of expired food, or artificially, like the depreciation of car values, when newer models enter the market. Ultimately, there are no rigid rules or cutoffs for categorizing perishable inventory, as it encompasses a spectrum of perishability.
Numerous industries contend with perishable inventory, often characterized by short, inherent lifespans.
Organic products, including
Typically, they fall into this category. Likewise, items necessitating refrigeration, such as pharmaceuticals, exhibit various forms of perishability. A notable instance is the COVID-19 vaccines, which possess a brief shelf life once removed from the freezer.
Technology products face perishability, driven by planned obsolescence or the natural evolution of device capabilities. Products subject to yearly model updates, from automobiles to computer chips, predictably incur some degree of perishability.
Experiential offerings that demand an individual’s presence at a specific time and place are also perishable. Examples encompass rounds of golf, hotel reservations, transportation services, and entertainment tickets. Nevertheless, this conversation won’t extensively explore these, as revenue management strategies for handling intangible inventories differ.
In the realm of business-to-business industries, perishable products are prevalent as well. Some resemble scaled-up versions of business-to-consumer challenges, such as supplying food to restaurants. Others, like advertising slots in daily newspapers or during television broadcasts, present distinctive perishability dynamics.
Watching various types of stock holds importance, but the meticulous oversight of perishable inventory has even greater significance.
The unutilized stock that reaches its expiration point signifies a total setback for the enterprise, and the operational glitches stemming from frequent occurrences of this nature can lead to severe repercussions.
Inventory tracking substantially diminishes the likelihood of errors leading to inventory expiration.
Furthermore, with regular audits, inventory tracking can promptly uncover issues and offer valuable insights for tracing their origin. In scenarios where each product unit is on a countdown toward its expiration, inventory tracking transforms into a mission-critical endeavor for businesses aspiring to thrive.
Effectively managing perishable inventory Involves synchronizing the volume and timing of supply and demand.. Merely providing a sufficient quantity of products to satisfy customer requirements is insufficient. Businesses dealing with perishable inventory must fulfill each customer’s needs precisely when they arise, all while avoiding excess inventory that could lead to costly losses due to expiration. In the next sections, we present some strategies to manage perishable inventory.
FIFO is “First-In, First-Out,” a method of inventory management and valuation. In the context of inventory, FIFO means that:
The first items added to a stock or inventory are the first ones to be used or sold.
In other words, the oldest inventory items are used or sold before the newer ones. This method is often used for goods with limited shelf life or could become obsolete, such as perishable items or items with rapidly changing technology, like electronics. By using the FIFO method, a business can reduce the risk of holding onto outdated or expired inventory, as it ensures that the older inventory is used or sold before the newer items. FIFO is generally considered more intuitive and closely reflects the actual flow of goods in many industries.
FEFO stands for “First Expired, First Out,” a variation of the FIFO.
FEFO is particularly relevant in industries where products have a restricted duration of viability and or become obsolete, such as the pharmaceutical and food industries.
Under the FEFO system, the oldest items in inventory are the first to be used or sold based on their expiration dates. This ensures that items with the earliest expiration dates are given priority to minimize the risk of items expiring and becoming unsellable or unsafe to use.
FEFO is especially important for businesses dealing with perishable goods, medications, or products where safety and quality concerns are closely tied to expiration dates. By implementing FEFO, these businesses can reduce the likelihood of losses due to expired inventory while maintaining product quality and safety standards.
Inventory tracking involves the meticulous monitoring of inventory levels. This entails maintaining a comprehensive understanding of your current inventory, including items in transit, quantities of each inventory type, their respective locations, and vital details about each unit, such as expiration dates. Additionally, it entails tracking the origins and destinations of inventory items when they are sold.
Some inventory tracking methods include payment tracking linking financial records to purchased and sold units. Ideally, every event involving an inventory unit should be documented, a task well-suited for advanced inventory management technology.
An effective inventory tracking system provides up-to-the-minute data, offering real-time answers to critical questions like:
Inventory tracking furnishes essential data for informed decision-making, reducing the likelihood of costly errors, such as overordering or failing to fulfill customer orders.
Proactively, if you identify surplus inventory nearing its expiration date, you can initiate a discounted promotion to minimize losses and recover some of the Cost of Goods Sold (COGS) instead of writing it off entirely.
Furthermore, robust inventory tracking is a diagnostic tool for identifying process issues like errors or theft. When you are unaware of your expected inventory levels, it becomes challenging to identify discrepancies and even harder to investigate potential incidents.
In an ideal scenario, inventory tracking should capture all actions involving perishable stock, including purchases, movements, sales, write-offs, giveaways, and other activities. However, in reality, not all inventory events are accurately recorded.
Discrepancies often arise from human errors, such as incorrect data entry or variations in execution, like inconsistent pouring in a restaurant. Additionally, discrepancies can result from system limitations or intentional actions, such as theft or damage.
The remedy is routine inventory auditing, or cycle counting, where you physically examine your inventory, compare it to your records, and investigate any discrepancies. This practice is particularly vital for perishable inventory, as errors and theft can deplete actual stock, and some perishable items may expire prematurely due to various factors like temperature during transportation rotation. Recognizing this possibility is crucial for maintaining adequate supplies and pinpointing process issues within storage and supply chains.
Demand forecasting proves indispensable in effectively managing perishable inventory, especially in sectors like food and beverage, where items can expire swiftly, and replenishment can’t always match sudden shifts in demand.
For instance:
Through accumulated data and experience, businesses identify peak seasons, busy days, and even peak hours, as well as recognize factors like special events that influence demand. Crafting demand forecasts, often closely aligned with sales projections, empowers businesses to plan proactively. In the absence of company-specific data, industry forecasts and awareness of broader trends can serve as a foundation, with adjustments made for local peculiarities. As businesses gain experience and enhance data tracking, their forecasting capabilities become more robust. By integrating sales forecasts with inventory tracking and audits, businesses gain precise insights into optimal order quantities from suppliers, meeting customer demand while minimizing wastage.
Another effective method for forecasting demand, although less formal, relies on nurturing strong customer relationships. The deeper a business understands its customers, the better it can anticipate their needs. Furthermore, well-established relationships encourage customers to communicate changes in their requirements in advance. This underscores the importance of valuing customer relationships and feedback, particularly for businesses dealing with perishable inventory.
Establishing various dedicated areas can be a strategic technique for managing perishable inventory effectively. These areas can include:
By creating and effectively utilizing these distinct areas, you can minimize waste, enhance product quality, and improve overall efficiency in managing perishable inventory.
All the strategies discussed thus far become more accessible and potent when augmented with information technology. While businesses typically commence with spreadsheets, investing in more advanced inventory management, such as Shipedge WMS can yield significant benefits, even for small-scale operations like single-location retail businesses. Robust systems simplify the integration of data and enable comprehensive planning, encompassing both financial and operational aspects.
Real-time or near-real-time technology systems prove especially valuable for swift adaptations, offering the advantage of receiving immediate alerts for any issues that may arise. For instance, in negotiations with customers seeking better pricing, a proficient inventory management system can precisely determine the number of units suitable for discounting and identify those with ample shelf life to wait for more favorable offers.
Safety stock is a concept applicable to manufacturers, retailers, and individuals alike. It involves maintaining a surplus of items beyond anticipated demand, as a precaution for unforeseen circumstances. Examples include manufacturers producing slightly more than customer orders, stores storing extra inventory in their backrooms, and individuals packing additional sunscreen and socks for a trip. Safety stock prepares for various scenarios, both positive, like an unexpected surge in demand, and negative, such as unforeseen events rendering some inventory unusable.
However, when dealing with perishable inventory, the concept of safety stock becomes less straightforward and riskier. Stockpiling a few extra units that are unlikely to sell quickly can lead to deliberate waste, as these units are expected to deteriorate.
Manufacturers of durable goods often employ formulas to calculate their safety stock levels, ensuring they never run out of inventory in case of customer demand. If failing to meet customer demand would be catastrophic for your business, maintaining a substantial amount of safety stock may be necessary, even for perishable inventory. Nevertheless, this approach can result in discarding valuable inventory to avoid telling one customer, “Sorry, we’re temporarily out of stock.”
Determining the appropriate level of safety stock depends on each business’s unique circumstances. For example, a frozen yogurt shop running out of a flavor has minimal negative consequences for customers, whereas a hospital facing a shortage of O-negative blood could be a life-or-death situation. The more severe the consequences of running out of a product, the greater the need for safety stock. However, with perishable inventory, the balance typically lies between zero safety stock and the quantity that would be stocked if the inventory were nonperishable.
All the strategies discussed thus far become more accessible and potent when augmented with information technology. While businesses typically commence with spreadsheets, investing in more advanced inventory management software can yield significant benefits, even for small-scale operations like single-location retail businesses.
Robust systems simplify data integration and enable comprehensive planning, encompassing financial and operational aspects. Real-time or near-real-time technology systems prove especially valuable for swift adaptations, offering the advantage of receiving immediate alerts for any issues that may arise. For instance, in negotiations with customers seeking better pricing, a proficient inventory management system can precisely determine the number of units suitable for discounting and identify those with ample shelf life to wait for more favorable offers.
Ensuring supply chain diversification has always held significance, but in recent years, it has become absolutely imperative for numerous businesses. Dependence on a single supplier for a critical aspect, and input without alternative options creates a singular point of vulnerability capable of disrupting an entire company’s operations.
There are three distinct dimensions of diversity to contemplate when striving to fortify a supply chain:
It’s important to recognize that diversifying supply chains comes with associated costs and potential increases in management complexity, which may reduce economies of scale. However, for perishable inventory, diversification takes on heightened importance because supply chain disruptions can result in substantial product losses, not just delivery delays.
The implementation of perishable inventory comes with several associated advantages. Let’s take a look at some of them below.
Utilizing software for managing inventory shelf life offers the advantage of making exact forecasts for future demand. This capability stems from the availability of real-time insights and analytics as your guiding tools.
Furthermore, it lets you oversee your entire inventory through a unified dashboard. This, in turn, allows for the identification of swiftly moving products and items at risk of becoming obsolete.
Moreover, it facilitates the recognition of inventory performance variations throughout different seasons or periods of the year. Nonetheless, to optimize your demand planning efforts, it is imperative to:
Following these instructions can improve your resource capacity planning and uncover opportunities to minimize lead times.
Implementing a perishable inventory control system enables the utilization of batch numbers during manufacturing. This facilitates convenient monitoring of the real-time whereabouts of your products, whether they are on the shop floor or elsewhere within the supply chain. Moreover, it expedites batch recalls when necessary.
Furthermore, this system allows for precise tracking of batch expiration dates for your products. Establishing end-to-end transparency and traceability will enhance supplier rapport by promoting mutual accountability.
Lastly, batch numbers aid in distinguishing your products, even if they may outwardly resemble one another due to differing production processes.
If you’re a business owner dealing with perishable inventory, introducing an inventory management system can provide you with close surveillance of your inventory. This system incorporates barcode scanning functionality, enabling real-time tracking of various inventory types. This, in turn, facilitates enhancements in the following areas:
Management of raw material inventory
Gaining greater command over your perishable inventory equips you to trim operating expenses and enhance production efficiency through real-time awareness of inventory locations and issue-prone areas. Consequently, this contributes to bolstering your operational income.
Another benefit of integrating a customized inventory management system into your business operations is its capacity to streamline your manufacturing lead time. This is achieved by providing your team with a clear understanding of tasks and their respective timelines.
Moreover, it offers the following advantages:
In conclusion, integrating a tailored inventory management system represents a strategic move for businesses aiming to enhance their operational efficiency. Reducing manufacturing lead time, facilitated by task clarity and timeline awareness, is a significant advantage. Furthermore, the system’s multifaceted benefits encompass improved production planning, the convenience of comprehensive bill of materials storage, precise operation definitions, and the automation of vital manufacturing cost calculations. These collective advantages not only optimize internal processes but also contribute to the overall competitiveness and success of the organization in today’s dynamic business landscape.
So far, we’ve learned about the main advantages of perishable inventory management in warehouses for most companies. Finally, we conclude this article by explaining how Shipedge WMS can serve as the solution to assist you in managing all your inventory, thereby improving the satisfaction of all stakeholders associated with the company.
Effectively managing perishable inventory is paramount for businesses across various industries. The consequences of mishandling such inventory can lead to financial losses and operational disruptions. In this article, we’ve explored the significance of perishable inventory, the types of industries that manage it, and various techniques to manage it efficiently.
To tackle the challenges associated with perishable inventory, it’s essential to embrace technological advancements and leverage specialized tools and solutions. One such solution is the Shipedge Warehouse Management System (WMS), which offers a range of technologies to improve inventory techniques. Here are some of the technologies that Shipedge provides to enhance perishable inventory management:
By embracing these advanced technologies and techniques provided by Shipedge’s Warehouse Management System, businesses can mitigate the risks associated with perishable inventory, reduce waste, improve supply chain resilience, and ultimately optimize their perishable inventory management processes. In today’s dynamic business landscape, these solutions are indispensable for ensuring competitiveness and success. Don´t waste more time, book a consultation now with our team and get a full guide on how Shipedge WMS could make a difference to your business. See you, in the next article.
