Perishable goods are a business risk. They represent an investment which may not always turn into a sale, and this can harm your cash flow.
Effective perishable goods inventory management will save your organisation money by minimising inventory waste and reducing your carrying costs. This guide explores all you need to know about perishable goods inventory.
What are perishable goods?
Perishable goods, also known as perishable goods inventory, are products that expire or degrade over time. Commonly it refers to food, drink, and medicinal products. However, a variety of other items are also considered perishable – such as tickets, garden products, technology (which becomes obsolete over time), and cosmetics.
The role of inventory management in perishable goods
Due to the time-limited nature of perishable stock, inventory management is critical to business success. Perishable items can’t just sit around in the warehouse gathering dust – they’ll expire and lose value if left unsold.
The role of an inventory manager is to ensure that your business is equipped to handle its perishable goods inventory in a way which prolongs its lifespan and maintains its quality. This must also be balanced with the ongoing process of optimising stock levels to minimise waste.
Challenges of managing perishable goods inventory
Because of its very nature, perishable goods inventory presents a few unique challenges for businesses. Here are some of the most common problems you’re likely to encounter operating a company that deals with perishable goods.
1. Waste
Waste is a primary concern among perishable goods stockists.
When you invest in goods and raw materials, you lock part of your cash flow into those purchases. Until you complete the production process and sell the final product, these items cannot be converted back into cash.
Perishable stock that never makes it to that final stage – because it goes off, loses quality, or gets damaged – is equivalent to cash flushed down the drain.
2. Pest and grime control
Rodents, insects, birds, mould, and other harmful interlopers love perishable stock such as food and plant products. When these pests and grime enter your facilities, they can be a nightmare to get rid of.
On top of the challenges related to eradicating unwanted dirt and critters from your warehouse, their presence can be costly and result in inventory write-offs.
3. Logistics
Your products are at risk from the moment they enter transit. They’re liable to become damaged by getting knocked about, left in the sun, stolen, or devalued in some other way. In some cases, perishable goods may be unique products – making it especially frustrating should they be lost or damaged in transit.
A tight warehouse logistics process is essential for managing perishable stock.
4. Packaging
Packaging is another common challenge for perishable goods stockists. Effective packaging ensures that a product will reach your customers in an acceptable condition: Undamaged and unspoiled. Poorly packaged perishable goods inventory can result in unhappy customers, returns, and costly product recalls.
Benefits of inventory management for perishable goods
Effective perishable goods inventory management offers many benefits for businesses. Namely, it saves you time and money while mitigating many of the risks and challenges mentioned above.
Key benefits of good perishable goods inventory management include:
- Maintain accurate records: Perishable goods inventory management ensures your teams always know what’s in stock, and in what quantity. Additionally, you’ll be able to immediately tell how long it’s been there, where it is, and where it needs to go next. All of this helps you stay on top of waste (and minimise it).
- Monitor performance over time: Tracking your inventory and sales data will allow you to see how trends develop over time, such as a loss in quality or diminishing demand. This permits you to respond quickly to unexpected shifts in supply or demand.
- Identify business inefficiencies: Inventory management helps enable data-based decision-making, so you can monitor your processes for bottlenecks, inefficient processes, and ineffective systems.
- Improve customer retention: Improving quality control and production efficiency often has a net positive impact on customer satisfaction. You’ll be able to deliver consistently high-quality products, resulting in more happy customers.
- Better compliance: Staying on top of your inventory helps you to better monitor all your various processes and data, ensuring you maintain compliance standards across the business.
- Cut costs: The more efficient and streamlined your processes, the more money you’ll save. Additionally, better quality and reduced waste can bring your operational costs down and lift profit margins.
Perishable goods inventory management methods
Using the right techniques and equipment to manage perishable goods inventory will help protect your profits and your stock. Below are 11 useful inventory management methods for perishable goods.
1. Demand forecasting
Demand forecasting is a process that combines technology, industry research, and sales analytics to predict which products customers are likely to purchase, in what quantity, and how often. By understanding when increases and decreases in demand are likely to occur, you can plan your purchasing accordingly.
This perishable goods inventory management method helps minimise the risk of stockouts and overstock, ensuring minimal waste and satisfied customers.
2. FIFO
FIFO, or First-In, Last-Out, is an inventory strategy for prioritising which inventory to use first during production, or which products to sell first from your available stock.
With FIFO, you prioritise the materials which arrived first and use or sell the newest goods last. This helps reduce the likelihood that you get stuck with degraded or expired items which can’t be sold or used, ultimately reducing waste.
3. FEFO
FEFO is a variation of FIFO meaning First-Expired, First-Out. It’s common among perishable goods manufacturers, in particular pharmaceutical companies. It’s also preferred by the EU for pharmaceutical retailers.
The FEFO costing method prioritises using and selling the goods that are closest to their expiration dates. Even if an item arrived very recently, if it will go off the quickest it becomes the priority.
4. Single-period inventory management
Single-period inventory management refers to purchasing goods for a specific sales period, consuming all that stock, and then reordering for the next one. It’s also known as the newsvendor method.
Where demand can be easily forecasted and goods expire quickly, the single-period model can help reduce waste by balancing risk. It compares expected demand with the costs of overage or underage to determine the optimal number of materials to purchase during a given sales period to mathematically mitigate the risk of waste.
5. Diverse your supply chain
Healthy supplier relationships are crucial to maintaining production. Any delays in getting new materials could mean existing materials expire too soon – further extending your lead times.
Diversifying your supply chain can take some of the risks out of the equation.
Here’s how it works:
- Keep more than one supplier in place for similar goods/services: This ensures redundancy in the event of an issue. It can apply to packaging suppliers, inventory suppliers, and logistics partners.
- Factor geography into your supply chain: Consider local alternatives for global partners and try to ensure your supply chain isn’t too geographically concentrated.
- Build a flexible supply chain that’s adaptable to changing market conditions: Look for suppliers that can produce a variety of products or customisations. This allows you to bend your production outputs in the event of big changes in demand.
Learn more: Supply Chain Management Methods, Processes, & Systems
6. Temperature and humidity monitoring
Temperature and humidity are major contributors to the longevity of perishable products. Bacteria and mould thrive in warm, wet conditions. They can also impact a product in other ways: Discolouration, defrosting, premature sprouting, and more.
Good technology helps you achieve effective product monitoring. By pairing sensors with smart software, you can hook up your entire warehouse to a monitoring network that keeps track of your equipment for you and notifies you instantly when something has gone wrong.
7. Inventory management software
Inventory management software enables real-time inventory insights and facilitates better inventory control. It does so by gathering data about your goods and materials, storing this on the cloud, and partnering that data with details on your costs, suppliers, warehouses, and other important information.
The best inventory software is designed to improve efficiencies, optimise processes, and forecast demand with real-time and historical insight into your inventory quantities, costs, and product trends – making it the perfect tool for managing perishable inventory goods.
8. Inventory auditing
Even with the best inventory control systems in place, errors and discrepancies are bound to happen.
Physical inventory audits are a useful tool for improving the quality of your inventory data, especially for any organisation where understocking could have dire consequences (such as a food manufacturer running out of key ingredients).
9. Safety stock
Safety stock refers to inventory held on a just-in-case basis. It provides a cushion to fall back on in the event of an unexpected surge in customer demand. For organisations managing perishable stock, safety stock is a business risk – but for some, a necessary one.
10. Reorder points
Reorder points are an established quantity level for a particular item that, when reached, triggers an alert to reorder more stock. It’s the lower limit of what your business must have in stock to safely meet production deadlines.
Cloud-based inventory management software can automate your reorder points. When the system detects that you’ve used up a certain amount of a stocked item, it will notify you with an alert. The process can be further automated to create and issue a purchase order whenever the reorder point is reached.
11. Batch tracking
Batch tracking is an inventory control method that assigns tracking numbers to specific production batches. This technique allows you to trace products through the manufacturing process and out to customers.
Through batch tracking, you can trace your products right back to their origin and then find all of the other products which came from that same batch. This method is therefore ideal for managing product recalls.
5 best practices for perishable goods inventory control
To improve the shelf life of your perishable goods inventory and gain more control over your processes, consider the following best practices.
1. Measure and improve inventory turnover
Inventory turnover is a metric that shows how quickly you use up (turnover) your entire stock of goods. It helps you understand the frequency at which you consume inventory, making it practical for determining optimal reorder points and predicting sales trends.
2. Establish strong supplier relationships
Healthy relationships with your suppliers make it easier to resolve supply chain issues promptly. Better communication and trust with vendors also improve your chances of negotiating for better pricing, while frictionless collaboration is essential for achieving maximum supply chain agility.
3. Automate your processes
Process automation – handing over repetitive, menial day-to-day tasks to a machine – frees up staff time so your employees can focus on more important tasks. Automated systems not only save you time but also reduce the risk of human error and empower employees to perform their jobs as efficiently as possible.
4. Don’t waste your ‘waste’
Expiring perishable inventory doesn’t always have to be thrown out. In some cases, your soon-to-expire materials may be repurposed instead of ditched. For example, over-ripe fruit may be turned into jam – or old technology can be scrapped for parts.
Consider leveraging discounts and promotions to get rid of goods that will be expiring soonest. You may even be able to build a relationship with a clearance retailer that will buy your short-dated stock on an ongoing basis.
5. Maximise product shelf life
While it may be impossible to make a perishable product nonperishable, there are sometimes ways to delay expiration. Make sure you’re using the best packaging and storing goods in the most appropriate conditions to prevent spoilage. This may mean introducing a chilled area to your warehouse or rethinking your lids and containers.
