What is inventory management, and how can a system help optimize your daily processes? Before we dive any deeper, at its most basic inventory management involves ordering, storing and profiting from non-capital goods. It sounds simple, but this couldn’t be further from the truth.
Putting together an inventory storage system that not only keeps things organized but also optimized for distribution is a daunting task. Luckily, inventory management includes features focused on doing these exact things.
Maintain organized storage practices
Organizing your inventory is key when looking for ways to increase efficiency. If your products are arranged in an intuitive way, important goods and be accessed quickly and moved to distribution at a moment’s notice. Leveraging helpful tools like barcode scanners and SKUs can keep things in order while also greatly increasing pick-and-pack speed. Businesses with complex inventories can use collaborative inventory features as well. This way, vendors can remotely manage inventory and keep their partners stocked. These features can help keep inventory manageable and organized:
- Mobile barcode scanning
- SKU tools
- Goods organization management
- Product categorization
- Collaborative inventory
- Cycle counting
Gain visibility into inventory
Data visibility is very helpful when it comes to optimizing any portion of a supply chain. Management systems drill down into daily processes to provide users with a view of where and how they can improve their inventory management. This is where features like analytics and reporting come into play. Without them, employees would have to compile and study data from every daily inventory process. Adopting these tools gives users the ability to truly find out what to sell, when to reorder and how to prepare for the future.
Increasing visibility is also important when attempting to increase customer satisfaction. By adopting a management system, automatic alerts can be sent to clients and customers that give them real-time information on where their product is and when it should arrive. Not only are customers happier, but owners can also cut costs and prevent losses by adopting analytics tools from a management system. When looking for a system that provides data visibility, make sure these tools are available:
- Customer management
- Analytics tools
- Asset management
- Customized reports
- Drill down data
Forecast and manage demand
Planning for and managing changes in demand is a vital piece of the inventory management puzzle. Strategies for dealing with constantly shifting demand can take a few forms, depending on the size of the business. Smaller businesses often have less room to store goods and have to be careful of ordering too much or too little of a product. Larger companies usually have more room available to store large amounts of goods, and in some cases can sit on these large numbers of a product until demand rises again. The type of goods in storage are also very important; you wouldn’t want a large backstock of perishable goods just sitting around. Without forecasting tools managing these types of variables would mostly be guesswork.
Forecasting tools give users the ability to take a peek into the future to better understand what and when they should order. By aggregating the data gathered from daily inventory management processes, a system can connect past demand fluctuations with real-time information. Analyzing past and present trends can give users a leg up on the competition by preparing them for the future today. Keep these features in mind when considering an inventory management system:
- Forecasting tools
- Trend analysis
- Product histories
- Automatic reordering
- Stock inquiries
Cultivate an inventory management strategy
When it comes to deciding on the best way to handle inventory management, there are a few common strategies to consider:
- Just-in-time Management (JIT)
- Materials Requirement Planning (MRP)
- ABC Analysis
- Days Sales of Inventory (DSI)
- Qualitative Inventory Analysis
The strength of these strategies depends on the business they are being adopted by. For example, JIT inventory management is a riskier approach that is focused on cost-cutting. This strategy calls for extremely low inventory volumes to reduce waste and shrink storage costs. However, if demand suddenly takes a dramatic swing, this strategy could easily fall behind. To counter these shortfalls, companies that employ this strategy need robust forecasting tools in place to accurately predict their next move. Saving money is great, but facing a crowd of customers that you can’t deliver to is far worse.
A more traditional method would be an MRP inventory management strategy. This strategy is often used in the manufacturing and distribution industries through forecasting and dividing goods into two categories. Independent demand stock is made up of completed items like cell phones, while dependent demand stock includes component pieces. This setup uses forecasting tools to establish planning through data gathered from sales reports. By using the data from these reports, inventory needs can be communicated to suppliers as quickly as possible.
Find and develop partnerships with suppliers
A management system can help organize and boost a business’s inventory performance, but there are external variables to consider. Suppliers are, obviously, integral to inventory management as they provide the materials and products necessary to the operation. Inventory management can help users connect with affordable suppliers while also measuring their performance over time. This way, business owners and suppliers can discover new methods to optimize and improve overall performance.
For example, a management system can track how often extra or unnecessary goods are received and then returned. These discrepancies can then be talked about with the supplier and remedied. Depending on the organization, there may be stricter regulations suppliers need to meet. A business that stores medical supplies must adhere to more stringent rules than a basic retail operation. Make sure your purchasing and supplier management features are up to date with these inclusions:
- Supplier management
- Partial receiving
- Purchase orders
How Does the Cloud Help Inventory Management?
Cloud-based systems are on the rise, and for a good reason. Adopting management systems that are deployed via the cloud conveys a number of helpful advantages:
- Secure file storage
- Mobile access via internet-enabled smart devices
- Easy setup and integration
- Lower cost of entry
- Easily scalable and agile
- Painless file exchange and recall
The cloud is here to stay, and before long, most businesses are going to jump on the bandwagon. Adopting the cloud is especially attractive to new or smaller companies thanks to its lower cost of entry through subscription-based pricing. This way, businesses that normally wouldn’t be able to afford a management system can. The safety provided by a cloud-based system is also a price effective benefit of cloud-based solutions. Expect to see more and more vendors offering cloud systems in the coming years.
How Does the Internet of Things (IoT) Impact Inventory Management?
As more and more technology begins to work collaboratively through the sharing of data, supply chains and networks become stronger. This teaming-up of technology through the transfer of data is referred to as the internet of things, and it is taking the world of supply chain management by storm for a variety of reasons:
- B2B applications of the IoT will generate $300B in revenue by 2020
- Potential contributions to inventory, supply chain and warehouse management could reach $560 billion to $850 billion by 2025
- The IoT is generating multiple forms of value in manufacturing today, with inventory management as a lead profit contributor
- Customer insights can be gathered through the aggregated data provided by distribution networks
How Do I Select an Inventory Management System?
When choosing, it is important to ask yourself a few questions to narrow down the landscape of vendors. How big is your business? How much room is there in the budget for a new system? Do you require a certain deployment strategy? By asking these probing questions, curious parties can focus their search on vendors that meet their unique set of requirements. It is human nature to see a large price tag and assume that a product is the best choice. As in most cases, this is a bad idea. Purchasing an overly complex system will do more harm than good in the end. If you need a little more guidance, check out our Inventory Management Requirements Checklist or our list of Inventory Management Features and Requirements.