BDC advises businesses on inventory management strategy

The Business Development Bank of Canada (BDC) is providing businesses with a framework for creating effective inventory management strategies aimed at reducing costs and increasing efficiency. The guidance emphasizes a strategic approach to ordering, storing, and utilizing inventory.

The first step outlined by BDC involves determining optimal stock levels for each item. This requires analyzing demand variability, associated costs, supplier lead times, and the accuracy of sales forecasts. Businesses are advised to balance having enough stock to meet customer needs against the risks and costs of holding excess inventory.

Secondly, the bank suggests carefully considering storage locations to minimize handling and transportation. For raw materials, storing them near production lines is recommended. For finished goods, a centralized storage area can simplify tracking. Businesses with multiple locations must balance proximity to customers with the expenses of maintaining several storage facilities.

Finally, BDC details two primary methods for replenishing inventory: the "push" system, which relies on sales forecasts, and the "pull" system, driven by actual demand. The choice depends on demand stability and supplier reliability, with the option to use a hybrid approach for different product types.