Inventory Management and Your Business
Inventory management is one of the most challenging aspects of running a retail business. As companies grow, their needs expand and their product line increases. This follows a corresponding increase in suppliers, warehouse workers, and storage space.
At the same time, unpredictable outside forces like economic fluctuations and changing trends are constantly impacting customer behaviors. This is why studying consumer needs keeps becoming more complex.
Fortunately, technology is enhancing inventory management and changing the way retail businesses access and process information. It is now more important than ever that inventory managers collaborate closely with all other departments – be it manufacturing, sales, accounting, IT or customer service. Technology can only be as resourceful as the people contributing data to it, so everyone needs to be actively involved.
With inventory tracking solutions evolving, best practices for inventory management are also changing. As you look for inventory software solutions, it is important to ensure that they allow you to do the following.
1. Categorizing Your Inventory
Normally, three types of inventories are regulated in manufacturing companies – raw materials used in production, incomplete products at the end of an accounting period, and finished products that are ready for sale.
This type of inventory classification is a function of the accounting department and not the inventory management personnel per se. And yet, inventory managers must communicate this inventory data to the accounting department for its quarterly reporting. Sales and IT teams also require this data. This is why it is crucial to have all departments in sync on inventory.
Another classification is known as the “ABC” inventory. This is a prioritized categorization based upon the value and importance of items in inventory. In this manner, a finished product will have the privileged position of “A”, raw materials will usually be in the “B” position, and parts and sparsely used items in the “C” position. This categorization will also determine where inventory is physically stocked in a warehouse.
2. Using Predictive Models
Housing a lot of inventory that is not likely to be used or sold is inefficient and costly. Fortunately, today, technology provides access to big data. This allows companies to access information from their own data sets, and then to structure that data along the lines of specific queries.
Here’s a simple example: A company introduced a new product a year ago. Sales have not been great, and its inventory has piled up. Through data science, the company can gather data regarding historical sales of similar products and consumer demand for them. And with the right analysis of that data, they can make smart decisions based on science, not hunches. Is the demand so low that production should be curtailed? If demand is high, perhaps it has a marketing and sales issue that needs to be looked into.
With the right analysis of inventory data, businesses can study the factors that impact sales, develop historical patterns, and better predict inventory needs. These will enable them to right-size their inventory and only house what is necessary.
3. Demand Forecasting
Big data can provide you with a lot of information if you analyze it correctly. But your marketing, sales, and customer service departments can provide valuable information too. They must be involved in the process of deciding how much inventory to stock at various times of the year, based on their individual experience. Including these teams in the process of forecasting is therefore absolutely critical.
An effective software system will allow the automatic input of every product sold, returned, or exchanged throughout a reporting period. This information can be used by all the different departments at your retail business to create a holistic picture of your inventory needs. In this way, they can all work towards an efficient and cost-effective plan for inventory control.
4. Selecting the Right Management Models
Management is now very diverse and companies run differently depending on their needs. For example, with the right software, a company could give a supplier access to their supply in real-time. The supplier can then take responsibility for determining re-stocking frequency and delivering items to the company on time. This would shift the burden of constantly checking stock and placing orders onto your supplier.
Another management model would allow inventory to be tracked in-house, with pre-determined volumes and an alert system. The appropriate department managers would receive alerts when inventory reaches a pre-defined threshold, so that raw materials can be ordered or production increased as required.
Closely analyzing your functions will help you single out the right management model for your company. The point is this: Once you determine an inventory management model, be certain that any software you choose honors that model.
5. Automating the Inventory Processes
One goal for inventory management is reducing the amount of time that must be spent on the management process. No one wants an arrangement that requires sending in “counters” to a warehouse to physically count items and report the numbers to a manager.
The manager next uploads all of the information into whatever system is currently in use and sends them out to accounting, sales, IT, etc. departments. This is a terrible waste of manpower and money.
It is time you left the counter and paperwork costs behind and invested in a software solution to track inventory in real-time. This provides company-wide visibility into inventory operations as well as the opportunities to reduce costs and optimize inventory.
Inventory Management: Meeting the Challenges
These five best practices should help to alleviate many of the challenges of inventory management if used in tandem with the right software solution. But the other half of the puzzle is the employee base.
Take a look at what your main objective for inventory management is. You want to balance the needs of your customers against minimizing the costs of carrying a lot of inventory. But you also need to realize that other departments have their own objectives too.
- The sales and customer service departments want to make sure that stock is always available to fulfill customer orders. They would like a surplus of products so they never have to say “out of stock” to anyone.
- The procurement department might prefer buying in bulk, in order to score a better price.
- The finance and accounting departments are worried about carrying costs. They want to house only the minimal amounts of inventory.
Inventory management must balance all of these goals and find a happy medium that safeguards the interests of all parties involved. And for this reason, all departments must be involved in the discussions and decisions related to inventory.
The other challenge, of course, is the macroeconomic factors that are often unpredictable and yet, heavily impact supply and demand. Economic downturns can be difficult, if not impossible, to predict and you can be left holding an inventory that is going nowhere. Obviously, finance and accounting will not be happy.
Inventory management is a complex function for any company. There are many factors that cannot be controlled or accounted for, and so many players influencing inventory requirements. Managers of the process are often torn between attempting to efficiently manage stocks and keeping everyone satisfied, especially customers.
Using the best inventory management software, analyzing what relevant data brings to the table, and staying on top of economic indicators is an ongoing responsibility. It is good practice to continually assess your performance and the usefulness of the tools you’ve employed.
This guest post was contributed by Amanda Sparks, Content Manager at StudyClerk. She is passionate about developing innovative and customer-friendly solutions for brand growth.