Cutting Waste or Best Practices in Managing Perishable Inventory
Published on 23 December 2020
How food and beverage companies can use good inventory management and demand forecasting to reduce inventory carrying costs and sell their perishable goods before they expire.
The global pandemic exacerbated the need for good perishable inventory management. Afraid that they wouldn’t be able to fulfill orders during the crisis, companies stocked up on their fast-moving products and supplies. Many also switched over to making and/or selling pandemic-related necessities like hand sanitizer, face masks, and gloves.
With the world’s supply chains beginning to normalize, it’s time to take stock of the goods sitting in storerooms and warehouses—specifically those items whose shelf life may be coming down to the wire. Critical because these lose their value over time until rendered worthless, perishable inventory management should focus on selling those goods before they expire.
Typically associated with food and beverages, the word “perishable” applies to products that have to be consumed within a specific period of time before spoiling. The truth is, perishable inventory also includes flower bouquets that wither and are rendered unsaleable, event tickets that go unsold, or even the hotel room that sits empty overnight.
The bag of coffee that expires while sitting on the shelf in a small café, an obsolete piece of equipment that’s sitting on the shelf in a distributor’s warehouse…the list goes on. These and other perishable inventory items can be a significant expense for companies who literally get left holding the bag when the clock runs out.
Putting the Right Systems in Place
Made up of the tools, strategies, and techniques used to store, track, and replenish inventory, inventory management is critical for any product-oriented business that has money tied up in inventory. It’s especially important for companies that use and/or sell perishable goods that could wind up spoiling before they can be used.
To track perishable inventory, companies can use manual, automated, or hybrid inventory management systems focused on accurately matching supply with demand. And while such forecasts naturally become “hazy” in the midst of COVID-19, most times they do help provide a clear picture of what customers will need and what your company should have on the shelves (or, be able to source quickly) when the order comes in.
Using alerts that indicate when supply is low on certain products, for example, automated inventory software helps ensure that the goods are in stock when a customer asks for them. Unfortunately, it doesn’t always tell you when you’ve over-ordered something or when you’re in danger of losing product to spoilage.
“If the inventory is perishable,” Small Business Chronicle points out, “it has a defined date of usage and business owners need to pay closer attention to inventory demand cycles than non-perishable business owners.”
A better approach for perishable products is the single-period inventory, which focuses on ordering only enough goods for one period (e.g., a week, a month, a quarter, etc.). Only when that inventory is sold does the company reassess the potential demand and place another order. “This system will limit the amount of inventory that can spoil, go bad, or be otherwise obsolete,” the publication points out.
First-in-first-out or “FIFO” is another inventory management tool that can be used with perishable goods. The approach is straightforward: what arrives first gets sold first. For example, milk containers are stored according to their expiration dates in a refrigerator. The milk cartons with close expiration dates are stored in the front so that they get sold first.
“The main aim of this concept of inventory management ensures that the oldest stock is moved out first to guarantee cost-effectiveness and avoid waste,” Complete Controller explains. “The widespread use of this concept makes it ideal for many industries who use it along with other models of stock management.”
Minding the Details
Regardless of which approach a food and beverage company uses, its perishable inventory management should also incorporate product batch numbers, traceability, recalls, and obsolescence, all of which can be used to ensure the sale of inventory before its expiration date. When integrated with (or included as part of) a warehouse management system (WMS), inventory management systems provide high levels of visibility over stock that’s nearing the end of its useful life. This, in turn, helps food and beverage companies fine-tune their perishable inventory management processes.
Accurate demand forecasting is another must-have for food and beverage companies that want to reduce their inventory waste. “Demand forecasting (or sales projections) helps you understand how much of each product you need to have on hand at all times to meet customer demand,” Business News Daily points out. Established companies can base their forecasts on historical sales data, while startups can use assumptions and industry data to come up with these projections.
By using accurate sales numbers, putting someone in charge of the perishable inventory tracking processing, and doing regular inventory cycle counts, small businesses can save money on spoilage and unsold products. Warehouse managers who know that the 100 crates of navel oranges that arrived on Friday afternoon either have to be used or sold within the next week can either give the oranges a more prominent place on the retail floor (for a grocery) or offer a promotion for 25% off vanilla-orange smoothies (for a restaurant).
Stay Profitable and Keep Scaling
With inventory carrying costs comprising a good portion of many business budgets, effectively managing goods that could at some point expire helps keep those costs down while also avoiding excessive waste and spoilage.
Plus, inventory management is crucial to prevent loss of items, quickly fulfill customer orders, and know when you need to buy more of a given product. “It contributes directly to profitability,” Business News Daily points out, “and no business can successfully scale without an inventory management process in place.”