What is the 80 / 20 rule of Inventory Management?

The 80 / 20 rule — 20 percent produces 80 percent of the results — applies to inventory and to customers. Develop an authorised stock list for each warehouse and procedures for adding and removing items. In general, top selling inventory items are stocked, slow movers special ordered. Sales people should confer with the best customers to ensure their needs for in-stock items are stocked. Lesser customers can special order or even look elsewhere once in a while. Look for opportunities to drop ship.

To reduce damaged and pilfered inventory, run a clean, well-organised warehouse. Establish a cycle-count schedule. No forecasting and replenishment system will work well if the quantities in the computer are not accurate. Accuracy is improved over manual procedures by using scanners for shipping and receiving.

When branch locations do enough business to be able to buy at the same price as the main location, then the branches should do so. For items that can only be purchased at a competitive price by consolidating orders across the company, like slow moving items, they should be purchased by the main location and transferred to the branches.

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