Efficient inventory management ensures you always have the right inventory in place, at the right time, and with the right number of products.
Inventory management is the art and science of balancing supply and demand within manufacturing and distribution businesses. Small and mid-sized businesses face many inventory management challenges, such as having excess stock and being unable to sell it, not having enough inventory for order fulfillment, and not understanding what items they have in inventory and where they are. Proper inventory management enables companies to manage their supply chain and know the right amount of products to make a profit.
With a well-thought-out plan in place that optimizes the inventory management process, companies can achieve several benefits. In this blog post, we discuss what those benefits are and the types of inventory management strategies businesses can apply to improve efficiency.
Advantages of Inventory Management for a Business
Effective inventory management can help companies save up to 30% annually on their inventory costs, so proper inventory management is important for the success of a company's operations. Efficiently managing the inventory has a significant impact on the bottom line, no matter the company's type or size. Here are some major benefits of strong inventory management:
More accurate inventory
Accurate inventory management is key to running a successful business. With a tracking system, companies can reduce the amount of inventory that they have to keep on hand while improving order accuracy. They help businesses fulfill orders and monitor each product entering and leaving during production, storage, and sales.
Such software may also include logistics features that help companies track order fulfillment time. This gives the customers an accurate delivery estimate and helps companies avoid falling short of those promises. All in all, those with accurate inventory might decrease internal inventory management costs and build better connections with partners and customers.
Improved customer service
Customers who do online shopping expect faster delivery times and high-quality products, so there is nothing more awful than their orders arriving late, damaged, or not-as-described. When that happens, customers are less likely to buy from that company again. With streamlined inventory management, companies can help improve the customer experience and fulfill orders more quickly. The improved processes keep consumers coming back for more, creating a positive brand image and leading to increased profits. This level of service can grow customer trust and loyalty, strengthening their connection with the company as a result.
Better coordination between multiple locations
Having multiple retail locations or warehouses means more inventory to manage. Good inventory management can allow a business to organize and improve the coordination between various facilities. Greater coordination between different locations can help cut down the costs and improve the sales process by enhancing the brand's image and attracting new customers.
For instance, when one location of a clothing store chain runs low on stock for a certain shirt, it might need to order more shirts from another location. The inventory management system can show store associates which locations have that shirt, how many are in the system, and what they cost. Then, they place an order through the system, which automatically updates the inventory count at every location.
Enhanced data visibility
In addition to making data more secure, proper inventory management also makes data more visible to the company's executive team. More data visibility enables business leaders to make better decisions with fewer errors that could cost money or time. For example, an inventory management system enables a warehouse manager to see what inventory enters and leaves the warehouse, helping them find any discrepancies in inventory counts.
Prevention of stock-outs and excess stock
Letting inventory levels go without regular checks can quickly lead to excess or lack of important stock. Either scenario is damaging – having too much of something and being unable to move it out consumes valuable warehousing space. And not having enough of a popular product can lead to stock-outs and frustrated customers. Effective inventory management can step in and help companies avoid these bad events from occurring and dropping the entire supply chain. Such systems are used to manage the orders and inventory across all of your sales channels simultaneously, so you will know when to replenish stock.
More organized warehouse
Without managing and tracking the inventory, companies find it difficult to know what, when, and how much is needed. With quality inventory management, businesses can create better organizational systems of inventory. Organized inventory enables employees to categorize products by name, color, date, or other useful parameters. They can see all of the moving parts in one place, products that are moving and those that are getting sold slowly, and if certain products get sold at certain times of the day/year. This includes cost savings and better product fulfillment for businesses using the warehouse to manage inventory.
Controlled costs
Some companies' inventory costs are higher than they should be due to holding too much stock, lack of stock, inefficient purchase orders and maintenance schedules, outdated tracking procedures, employee wages, and transportation costs. An advanced inventory management system enables successful cost control of operations by identifying the accurate quantities of certain products. The reports tell employees what you have in stock, what is in your warehouse, and how to manage the supply chain properly. This makes the pick, pack, and prepare process run smooth, so the companies fulfill more orders as efficiently as possible.
Types of Inventory Management Methods
Here are some inventory-control techniques you may choose to utilize in your own warehouse.
Just-in-time (JIT) inventory management
Just In Time (JIT), sometimes also called lean manufacturing, is a technique that focuses on adopting the approach of ensuring that only what's required to fulfill present and expected customer orders is kept in stock. JIT is quite popular with eCommerce businesses that create customized products. It maximizes efficiency and reduces costs by only ordering and receiving stock as needed. This method allows for lower inventory holding costs and limits the company's reliance on warehouse storage. Companies use this method to cut their warehousing costs and to better optimize their existing storage space more cost-effectively.
Economic order quantity (EOQ) model
The Economic Order Quantity (EOQ) model helps with the assumption that a customer's demand is always the same, and as such, inventory will expend at a fixed rate until it reaches zero. The strategy times reorders to prevent shortages or overages of products. It is one of the better inventory management strategies that show how much inventory a business should order to control holding and other costs.
ABC inventory analysis
This method works by identifying the inventory that is earning you profit by classifying goods into multiple tiers. Using this technique, the demand for different products is distributed evenly between all the available stock. The ABC Analysis technique enables companies to account for this by categorizing their products into three categories: A, B, and C. These categories can be based on their value, demand, or cost. When you split the stock into different classifications, you can prioritize the ordering of particular items that you have identified as a priority.
Drop shipping
A number of online stores make impressive sales without having an inventory of their own. In such cases, setting up the right systems and closely watching the activities is highly important. Some inventory management systems have direct integrations with platforms like Shopify for drop shipping. Dropshipping allows a business to have a wider range of items at the best locations. The provider ships products directly from its warehouse to customers in this practice. With diligent management, these online stores are less exposed to risk and experience more movement in their inventory.
Inventory Management Strategies to Optimize Your Operations
Efficient inventory management ensures you always have the right inventory in place, at the right time, and with the right number of products. No matter the size or type of your business, employing some of the common inventory management strategies can be a great way to take control of your stock.
Invest in the right software
As your business expands and you outgrow your basic accounting software like QuickBooks, consider investing in an ERP solution that has a robust inventory management capability. For instance, Microsoft’s Dynamics 365 Supply Chain Management allows companies the ability to obtain a unified view of inventory, warehouse, manufacturing, service, and logistics with predictive analytics that turn data into insights to support better strategic decisions.
Rely on real-time data and analytics
Using real-time inventory data and analytics enables business owners to always have accurate product information and sales forecasts instantly. Companies can use this data to predict the product market demand better and scale their inventory up or down, depending on the immediate requirement. Accurate sales forecasts also allow companies to market their business more effectively to certain customer segments. This will help improve customer service, increase cash flow, and boost profit margins.
Automate as much as possible
Automation makes stock management more efficient, more productive, and precise. Automate as many processes as possible such as your inventory level updates, uploading new products into the system, completing purchase orders, or automating confirmation emails and invoices. By automating processes such as these, business owners can reduce costs while also decreasing errors and increasing efficiency.
Utilize demand forecasting and planning
Demand forecasting can be used to predict demand based on your historical data, market trends, and other factors such as material availability or changes in customer preference. Using an inventory management system that offers advanced demand forecasting will help you prioritize your inventory as it connects to your sales and finances to help you predict demand and schedule orders.
Track supply chain performance
Another aspect of optimizing your inventory management is taking stock of how you obtain your inventory and how much you pay for it. Monitor your suppliers and keep track of their performance so you can make adjustments as needed. If orders are consistently late or incomplete, this ultimately impacts your company. Also, keep an eye out for opportunities to secure new arrangements or better rates to improve your profit margins.
Use mobile technology
Being able to access inventory through a mobile app can help increase efficiency as staff can get real-time data and accurate shipping information. Tracking inventory and managing shipments and assets also can be done at any time, from any location. It’s easy to go mobile, especially if you’re using a modern cloud ERP solution, which gives your team access at any time, anywhere, on any device.
Streamline communications
Reduce errors made from poor communication and ensure all your employees are on the same page by implementing software that consolidates your company’s data and streamlines communications.
Wrapping Up
Inventory management can make or break a business, and having an insight into the stock at any given moment is essential to a successful brand. With the effective inventory management strategies and the right tools available, small and mid-sized businesses can effectively manage their inventory, making them more efficient, more profitable, and better equipped to serve their customers.
Selecting the right inventory management software
Inventory control and management are top priorities for companies that want to grow and succeed long-term. Implementing the right ERP solution will help you manage all aspects of the business on a single platform, including not only your inventory but other items such as your finance, planning, logistics, and operations. Got questions or ready to get started on finding the right ERP for your business? Get in touch with the team at Kwixand Solutions. We help businesses across North America digitally transform, optimize operations, and streamline business processes in order to achieve their goals.