Chapter #7

Inventory Management Best Practices in Malaysia

In this chapter, we will share with you some of the inventory management best practices that your Malaysian business can implement. Of course, these are global best practices as well but from our understanding of the local market, we can create this list.

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inventory management best practices

Inventory management is the practice of ensuring that the right items are available at the right time and in the right quantity to meet customer demand. Reducing inventory levels and capital investment while still ensuring adequate stock levels for customers is a constant struggle for most businesses.

And many small and medium-sized businesses struggle with inventory management because they are not able to keep track of the changes in their business or due to a lack of resources to perform the updates.

In this article, we’ll discuss some inventory management best practices that you can use to reduce excess inventory, which can lead to lower costs and higher margins.

1. Implement Order Fulfillment Best Practices

Order fulfillment is one of the most important elements of successful inventory management as it has a direct impact on customer satisfaction, labor efficiency, and the cost involved in getting your products to your customers.

Therefore, one of the first and most important inventory management best practices is that you should implement order fulfillment best practices.

Here is a list of some of the best practices for order fulfillment:

  • Warehouse Organization – Facility Flow
  • Utilize Bins, Totes, and Dividers
  • Reduce Walking Time
  • Improve Ergonomics with Goods-to-Person Technology
  • Continuous Inventory Profiling
  • Prioritize Timely Replenishment

2. Establish Your Inventory Management KPIs

What can be tracked can be improved and you should definitely be tracking important inventory management KPIs.

Establishing the right KPIs in your inventory management will help you monitor and make decisions based on your performance and stock. They provide important information about sales, turnover, demand, costs, process success, customer satisfaction, and more. All these and more are important to track.

Of course, the different business operations will track different metrics. Therefore, Categorizing KPIs by operation type lets leaders focus on areas in need of change. By discovering problem areas, leaders can implement process adjustments and track their improvement.

3. Implement a Correct Inventory System

Nowadays, there are countless inventory management systems from only the very basic one that perfectly fits the needs and budget of small businesses to the large and advanced ERP inventory management systems such as Dynamics 365 Business Central or Dynamics 365 Supply Chain Management which offers powerful automation and AI capabilities as well as other modules to centralize your operation.

So, it’s not easy to select the right ERP or inventory system for your business as one can get easily confused.

It’s important to consider, do you only need inventory management or are you planning to implement a more robust type of software such as an ERP system that enables you to manage your inventory, financials, sales, service, projects, and other aspects of your operation.

If you are looking for an ERP system with an inventory management module, contact us to learn more or visit Dynamics 365 Business Central page.

4. Analyze Your Data

Your business is generating tons of data every single day, but the question is, are you collecting it and if so, do you have a process and system to analyze your data to get meaningful insights?

Inventory management data helps you improve inventory capabilities and provide insights into patterns and trends that can be leveraged to improve business operations and customer satisfaction.

By analyzing your data, you can prevent stockouts of important inventories resulting in loss of sales, it enables you to prevent overselling due to multiple sales channels, speeds up your order fulfillment, maximizes sales and profit margins, and improves customer satisfaction, and more.

However, to effectively analyze your data you need to consider a more robust data-oriented inventory management solution. These type of solutions enables you big saving and bring high ROI within months of deployment, plus further enables you to grow your business which was not possible with smaller systems.

5. Improve Your Inventory Turnover

The inventory turnover ratio helps you to understand how your company carries out effective inventory management. The higher the runover ratio the better you manage your inventory and order fulfillment.

Usually, the need of improving the inventory turnover ratio comes only when the turnover rate is low as it indicates that your company spends more on inventories than necessary.

However, regardless of if your inventory turnover is high or low, you should be consistently improving it because inventory operation is more efficient if products sell faster.

Customers demand more and more products, forcing businesses to replenish their inventory more often. Businesses that churn their inventory more often than others will have higher inventory turnover ratios. This means they will have less “blockage of funds/investment in.

In other words, better inventory turnover results in less cash tied up in inventory and less investment in inventory that’s why improving inventory turnover is one of the best inventory management practices your Malaysian business can implement.

6. Implement ABC Inventory Analysis

Another super important inventory management best practice is to implement ABC inventory analysis.

abc analysis important part of inventory analysis process

ABC inventory helps companies refine operation processes such as cycle counting, reorder points, and safety stocks. This ultimately lets businesses control working capital costs more easily, reduce obsolete inventory and improve the inventory turnover rate.

ABC analysis is an important method of inventory control it helps to keep costs under control while allowing companies to maximize profit opportunities.

By focusing on the highest value goods and not on many low-value goods allows you to leverage imbalances of sales and have the appropriate amount of stock based on the class assigned to a stock.

ABC analysis is being considered one of the main inventory analysis methods being used by companies from the very beginning.

However, only a few companies really practicing it as it requires actively collecting and analyzing data.

That’s why implementing ABC inventory analysis is considered one of the most important inventory management best practices that your business in Malaysia should implement.

7. Improve Your Inventory Forecasting

Are your decisions based on gut feelings or data? Being able to accurately predict customer demand to ensure stock availability and speed of delivery without overstocking are key factors for business in both B2B and B2C industries.

Inventory forecasting is the key to business high profitability, delivering excellent customer experience as well as minimizing the risk of having too much or too little stock.

Proper replenishment planning always starts with accurate demand forecasting and to do that, your business needs to have access to historical data for each item in your warehouse to understand their demand.

Inventory forecasting is an advanced inventory management practice as you’ll need to have implemented enterprise resource planning (ERP) or warehouse management system (WMS) that provides demand forecasting capabilities.

Depending on the system you are using or going to implement different forecasting and AI capabilities you will have access to.

For example, Dynamics 365 Supply Chain Management offers to:

  • Generate a statistical baseline forecast that is based on historical data.
  • Use a dynamic set of forecast dimensions.
  • Visualize demand trends, confidence intervals, and adjustments to the forecast.
  • Authorize the adjusted forecast to be used in planning processes.
  • Remove outliers.
  • Create measurements of forecast accuracy.

Or with Dynamics 365 Business Central demand forecasting is used to predict independent demand from sales orders and dependent demand at any decoupling point for customer orders.

8. Reduce Your Inventory

Most inventory-based businesses, spend more money on their inventory than on real estate, labor, and merchandising – making it their largest investment.

Inventory accuracy hovers around 63% studies show which means inventory levels are chronically inaccurate meaning that there is a big chance of overstocking and a large part of your working capital being tied up into inventory that could be used to grow your business better somewhere else.

Therefore, inventory reduction methods should always be regarded as inventory management best practices and incorporated into the company culture in order to optimize inventory performance.

9. Implement Automation

Inventory automation is arguably one of the best ways to improve workforce efficiency, reduce human errors, do more with less, and definitely improve the well-being of your employees.

By implementing inventory or warehouse management solutions you will be able to access powerful automation capabilities to help you optimize your entire inventory and distribution process. You can automate everything from drop shipping to backorders, partial fulfillment, order invoicing, customer tagging, inventory counts, forecasting, Bills of Materials (BOM), and more.

Complete inventory management systems give you the power to handle your stock across the entire business, from barcode scanning to order fulfillment to sales reporting.

And with a robust ERP system with inventory and warehouse capabilities, you can take it to step further by automating processes across sales, service, finance, and operation enabling you to boost your business productivity to the next level while reducing human errors to a minimum.

10. Implement Strict Quality Control

With digital channels bringing more and more sales revenue to the business, it’s even more important to implement strict quality control. Unlike in the usual brick-and-mortar shop where people can inspect your items by themselves, in online channels, customers rely on your ability to deliver exactly what they order without any damage, fault, or imperfection.

Not implementing strict quality control, especially for your products being sold online can cost you more than just returned packages and refunds, but your reputation as well.

In fact, 1 in 3 customers will leave a brand they love after just one bad experience.

1 in 3 customers will leave a brand they love after just one bad experience.

While 92% customers would completely abandon a company after two or three negative interactions.

92% customers would completely abandon a company after two or three negative interactions

So, no matter how your quality control is, there is always room for improvement and regardless you are selling online or offline, making sure all your products pass through your quality control ensures your customers are happy with you.

11. Establish Reorder Policy

Establishing reorder policy helps you optimize your inventory, replenish your stock of individual items at the right time, and meet your market demand without going out of stock.

One best-practice approach to choosing a reordering policy is ABC classification. Using ABC classification, items are managed according to three different classes depending on their value and volume relative to the total stock. The values and volumes of the three classes are shown in the following table.

ABC classification inventory management best practices

Also, by using reorder point formula you can improve your inventory control in order to limit excess and obsolete stock, thus, high handling cost or stockout, thus, losing sales to your competitors.

Nowadays, modern ERP and inventory management systems help you with intelligence notification when is the best time to reorder your stock based on your historical data. This goes beyond just the classic reorder point formula as the AI can look at the past trends and seasonability and adjust your inventory levels based on that.

12. Implement Important Inventory Policies

Supply-chain and operations managers can use inventory policies to manage time, demand, and uncertainty in the supply chain. A well-adjusted policy enables a company to be more agile, efficient, and profitable.

The inventory policy helps to minimize mistakes by predicting what could go wrong and preparing for it. It also establishes a set of rules to deal with those problems ensuring standardized processes and best practices have been implemented.

Those policies must take care of three main levels of inventory decisions. Primarily, they must deal with strategic decisions in the supply chain, like:

  • What are the potential alternatives to inventory?
  • How the product is designed?

For instance, it may make sense for a company investing in faster transportation and therefore not having a lot of inventory. In other cases, with products that take more time to transport, it’s possible that the best solution is to have a bigger stock.

Best ERP for Inventory Management in Malaysia

Here we are going to show you some of the ERP systems for inventory management that you can implement for your business in Malaysia.

Each of these systems has its own pros and cons, made for different needs and business sizes. It’s important to consider important aspects of your company while deciding which system is the best for your business.

Here is our list of recommended ERP Inventory Management systems in Malaysia:

Microsoft Dynamics 365 Business Central

inventory management best practices dynamics 365 business central best erp for inventory

Dynamics 365 Business Central is an ERP Business management solution that helps small and midsized companies connect finance, sales, service, and operations teams within a single easy-to-use application to unlock the insights needed to adapt faster, work smarter, and perform better.

The main benefits are:

  • Adapt faster. Innovate and adopt new business models faster with the flexible deployment models, mobility, reliability, security, and adaptable Microsoft cloud solution that grows with your business.
  • Work smarter. Get a complete picture of your business with easy-to-create dashboards, built-in analytics that proactively informs and guide employees, and interoperability with Microsoft 365.
  • Perform better. Enable high performance with guided workflows, governance, and real-time metrics that drive continuous process optimization accelerates financial closes and improves cycle times.

A great solution for SMBs with 50-250 employees.

Microsoft Dynamics 365 Supply Chain Management

inventory management best practices dynamics 365 supply chain management best erp for inventory

Dynamics 365 Supply Chain Management enables organizations to rapidly adapt to disruptions and ensures business continuity in a profitable manner. It provides them end-to-end visibility of their supply chain to make data-driven decisions to resolve demand and supply issues.

The main benefits are:

  • Resolve product quality issues and accelerate time to market, changing customer specifications, and obsolete parts to ensure compliance and mitigate delays.
  • Gain planning agility to fulfill customer demand using AI by planning supply and production in near real-time, ensuring the right resources are in the right place.
  • Optimize inventory and logistics by using predictive analytics to optimize and automate inventory, warehousing, fulfillment, material sourcing, and supply chain logistics.
  • Innovate with intelligent manufacturing operations with predictive technologies, IoT, and mixed reality to improve throughput, quality, and delivery while reducing costs.
  • Maximize asset uptime and lifespan by performing proactive maintenance.

Great for medium to large size businesses with 250+ employees.

Sage 300

inventory management best practices sage 300 best erp for inventory

Sage 300 empowers your business to better serve your customers and achieve your goals. It can help you prepare your business for growth and manage your finances, operations, and inventory. Simplify your financials and get paid faster.

The main benefits are:

  • Manage multiple companies and currencies: Sage 300 solutions make it easy to set up and manage multiple companies, close books, and report results by company or consolidated company.
  • Eliminate international business complexity: With Sage 300, you can maintain a large number of currencies and exchange rates, get daily updates, and automate the gains or losses from fluctuations.
  • Simplify inventory management: Multi-location inventory tracking to simplify inventory management- including shipments, returns, and adjustments. Ship orders on time, from multiple locations.

Great for small businesses with 10-50 employees.

QuickBooks Inventory

inventory management best practices quickbooks inventory best system for inventory

Quickbooks Inventory Management Software organizes your inventory and makes it easy to find products and services. You can track inventory on hand, get alerts for reorder levels, and get insights on what you buy and sell.

With Quickbooks stock management software, you can enter non-inventory products and services. That is, the items you buy and sell but cannot track as inventory. You can also create bundles by grouping multiple products and services together.

The main benefits are:

  • View your quantities on hand: As stock comes in and out, QuickBooks stock inventory management software auto-updates your inventory. This makes it easy to see what’s selling and what to reorder.
  • Track stock value in real-time: As the value of your stock changes, so does your balance sheet. Prices will adjust automatically as you go about your day.
  • Keep updated about your orders: Keep track of what you have ordered from each supplier. Organize supplier contact info in one place to make reordering easy.
  • Low stock alerts: Stay ahead of backorders. We’ll alert you when it’s time to reorder inventory with low stock alerts. Once inventory arrives, QuickBooks converts the purchase order (PO) into a bill to make sure you pay your supplier on schedule.

Great for small businesses with 1-50 employees.

Learn more about Microsoft Dynamics 365 Inventory Management Applications

Dynamics 365 is a portfolio of business applications that meets organizations where they are—and invites them to digitally transform. Each app is designed to remove the barriers and eliminate silos within organizations by working together with existing systems—or the entire portfolio of Dynamics 365 apps—for outcomes you simply can’t get unless every part of the business is connected seamlessly. Dynamics  365 offers several options for an inventory management system, each to fit your needs. Contact us to get personalized suggestion based on your needs, budget and industry.

Microsoft Dynamics 365 Business Central- inventory management solution

Dynamics 365 Business Central is an all-in-one enterprise resource management System for Small-Medium Size Businesses to centralize, simplify and automate your business processes across Finance, Supply Chain, Sales, Inventory & Warehouse Customer Service, Manufacturing, and Projects.

Microsoft Dynamics 365 Supply Chain Management - inventory management system

Dynamics 365 Supply Chain Management transforms your manufacturing and distribution operations and predicts disruptions and responds fast by digitizing your supply chain, warehouse and inventory management, enhancing visibility, improving planning, and maximizing asset productivity.

Microsoft Dynamics 365 Commerce - Inventory Management System

Is Customer Automation and Customer Management system. Differentiate your brand by taking advantage of built-in intelligence to deliver faster, more personalized service and add value to every customer interaction.

Microsoft Dynamics 365 Field Service

Provides complete field Service Management including service agreements, predictive maintenance, preventative maintenance, work order management, resource management, product inventory, scheduling and dispatch, mobility, collaboration, customer billing, and analytics.

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