Inventory management covers inventory tracking from manufacturers to warehouses and then to the end points where these products need to be sold.
To put it simply, it means tracking inventory right from purchase to sale. It helps companies in determining the right quantity of stock to order.
“Inventory is money sitting around in another form.” — Rhonda Abrams, USA Today
This is really a vital process as it can prevent any unforeseen issue related to fulfilling orders by the customers and any shortage.
A good inventory turnover and a bad one can play a huge role in reflecting the success of a business.
It aids businesses in ensuring the most appropriate amount of stock to be kept available, eliminating the possibility of too much stock.
A proper inventory management is undoubtedly a vital element of supply chain management. Having more stocks than sales leads to deadstock and a much lesser cad flow.
How is Inventory Management beneficial?
The most obvious advantage of good inventory management is that it boosts your ability to fulfill orders on time and brings a significant increase in profits.
The 3 most significant benefits of inventory management are:
It saves your resources
By reducing the amount of unsold stock ( by keeping the record inaccurate ) you can clearly see your money being saved.
You can use your stocks in a much more efficient and cost-effective manner. A good inventory management enables you to keep as much stock as you need.
A richer cash flow
Cash keeps moving owing to the fact that a sole inventory equals revenue. By cutting the cash tied to your inventory, you can significantly enhance the cash flow.
Generates a good impact on customers
After getting their orders on time and in a hassle-free way, who is not going to love giving orders to you?
Remember the better impressions you leave on your customers, the better your business prospects are going to be.
(Must read: Marketing management guide)
Challenges with inventory management
After knowing the top reasons for getting your inventory management right, it is more than essential to understand the key challenges one faces while working on inventory management.
Too much unsold inventory, insufficient inventory are the prima facie obstacles in handling proper inventory management.
First of all, you must know the stock details in and out. This will give you a very clear idea as to whether stock needs to be refilled or not.
Using manual or obsolete processes can prove to be a big barrier in efficient inventory management.
You need to pay deep attention to stock trends and tracking them. Otherwise you will have to give up on tracking what your customers need.
In a warehouse, locating products can prove to be really a tough job if inventory management is not done right. For example, Amazon's warehouse technologies
For an effective tracking of inventory, Inventory visibility is a prerequisite.
What is Inventory visibility?
Usually inventory is found to be spread across numerous locations of the supply chain.
Inventory visibility basically means having an ample knowledge of the right quantity and the right time to order, along with the most appropriate location for storage.
A hugely cardinal point is knowing the quantity of stock in hand and it's precise location.
This requires access to a highly accurate view of inventory. It enables businesses to ensure that orders can be fulfilled on time and stockouts and oversells can be successfully minimized.
Coming back to the point, the whole procedure of inventory management can be summarised in 3 basic steps:
Purchased items are delivered to the warehouse, where they can be stored until shipment. Shipping the products to customers right on time and selling your inventory leads to profits.
Why is inventory accuracy vital?
Having an accurate view of your inventory, saves you from the embarrassment of saying no to a customer even when stock is available.
If we turn the situation the other way round, promising customers in a situation when you're running short of stock, annoys customers and brings a stake in your brand reputation.
If you are determined to provide your customers the best experience and want to save your margins well at the same time, then tracking even minute changes in the inventory becomes essential.
According to IBM data, One retailer was saying “no” over 800,000 times a year because they couldn’t use store inventory to fulfill online orders.
In a scenario as described above, you not only lose revenue but also waste all your time and efforts that had gone into strategizing for delivering customers a good experience. It proves to be a big hit to your efficiency and utility.
As you must have realised by now, balancing inventory saves you from creating unsatisfied customers or risking the potential damages to too much inventory.
According to Forrester, omnichannel fulfillment is a high or top priority for 94% of retailers.
When you need to ensure each and every step in the supply chain is managed efficiently, then inventory deserves deep attention. After all, it's the most significant asset a company can have.
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Types of inventory management
Broadly, there are three varieties of inventory management:
Radio Frequency Identification
RFID inventory management can prove to be really efficient and enables self- recording of received and delivered shipments.
It involves the wireless transmission of a unique serial number or tag that becomes the identity of a product.
Inventory visibility can be enhanced using this type of inventory management.
Inventory management using barcodes
Various data points are utilised to provide a unique number to each product in the inventory. Assigning a number improves workflow and cuts on time that would be otherwise lost on navigating goods.
Executing a physical count at specific intervals
This method involves three steps:
A manual count of the inventory at the beginning of the period
Adding new inventory buys as and when required
Computing the cost of goods sold after taking all the calculations in consideration.
Next-gen inventory management
With the rapidly advancing technology, inventory management is being optimized by AI. AI solves the complexities involved in inventory management.
It not only helps to analyse customer's choices and preferences but also enables you to enhance your chances of focusing better on customer behaviour and ultimate satisfaction.
With its unbelievable and highly reliable accuracy, it aids you in cutting on both your costs and time.
It also becomes your helping hand in managing the safety stock you need to store in order to be efficient even in cases of emergencies.
Apart from AI, IoT sensors offer adequate information regarding the location and statistics of inventory.
The issues that were next to impossible to be tackled by businesses earlier could be effortlessly solved by quantum computing.
In order to enhance the supply chain performance, technology is being leveraged to an unprecedented extent.
This will not only enable supply chain operators in reducing the time and resources normally spent on logistics management, but also help in identifying the inventory management pain points.
(Suggested blog: Big Data in Supply Chain Management)
This blog ends here. We can see how a proper inventory management can go a long way in keeping the cash flow steady and boosting your business's customer service.
In today's age of unparalleled competition it becomes really pertinent to figure out the best way to keep your inventory management on the right track.