One of the best ways to improve your company’s finances is to practice better inventory management. Inventory management is a crucial part of your operational approach. How you choose to implement and maintain this strategy can have a lasting effect on your business’s efficiency and profitability.
What does this relationship look like? What steps can you take to improve your approach to inventory management?
Why Inventory Management Matters
Inventory management is important for your bottom line for several reasons.
1. Accurate Forecasting
Whether you’re taking counts in person or remotely, it’s important to generate accurate forecasting.
Monitoring your inventory levels as you land more sales and interact with customers on a daily basis is crucial. It gives you the opportunity to track the ebb and flow of transactions in your organization. Similarly, it allows you to figure out exactly how many products you should be ordering. You must know how many products you’re going to need to satisfy consumer demand.
There aren’t any tools that can offer perfectly accurate forecasting because the future isn’t inherently predictable.
However, you can at least get close if you track inventory levels with meticulous precision. Once you have this process down, you’ll also be able to accurately project several things. These include revenue, profit, losses, and other important business metrics. From there, you’ll be able to make better business decisions. You’ll also make them in a timelier, more decisive way.
2. Improved Cash Flow
Improvements to your inventory management should also result in improved cash flow. When you have a tight leash on your business inventory, you reduce losses.
You’ll seldom run the risk of overspending on products you don’t need. The number of products that remain on your shelves, unsold, will be minimal. You’ll keep your inventory on active rotation as more consumers buy what you’re selling.
Downstream, this means you’ll have more revenue coming in and fewer expenses. This allows you to have more free capital to allocate as you see fit.
3. Sufficient Supply
Better inventory management should also improve the supply you provide to your customers.
When someone shops with your business and wants to purchase one of your top products, they don’t have to worry about whether or not that product is available. With your accurate forecasts and consistent approach to purchasing, you’ll always have exactly the products you need most to serve your target demographics.
This is important for a few reasons.
Most notably, keeping products on the shelves means you’re going to land more sales immediately. However, it’s also important to keep in mind that an adequate supply will improve your reputation among customers. This incentivizes them to return to your business and leave good reviews for your brand.
Over time, this can lead to a massive breakthrough in your reputation, allowing you to reach even more people.
4. Higher Efficiency
Inventory is at the center of most of your business operations. You want higher efficiency.
Purchasers will need to think carefully about the products they buy on a regular basis. Additionally, product managers and salespeople will need to keep tabs on inventory. Customer purchases will be entirely dependent on what you have in stock and when you’re going to have new stock next.
Accordingly, the more efficient you are with inventory management, the more efficient your business is going to be overall. With smarter, higher-tech approaches to inventory management, you’ll be able to spend less money, save time, and better serve your customers simultaneously.
5. Loss Prevention
Inventory management is also effective for improving loss prevention.
If you’re keeping a close eye on the flow of products coming in and out of your organization, you’ll be able to detect when there’s a problem. These include theft, destruction, or some other external threat.
Combined with a proactive management strategy, you should be able to save significant money in your business.
6. Data and Insights
Finally, if you’re equipped with the right system, inventory management becomes much easier.
In one location, you’ll be able to gather tons of data about how your business is operating. As a result, you’ll see how your customers are behaving and how you might change your approach.
Used intelligently, the reports and analytics you generate with inventory management software can provide you with more data that you can use to make smart business decisions.
The Elements of Effective Inventory Management
Designing an effective inventory management system requires your attention to the following areas, at a minimum.
Improving your inventory turns starts with in-depth tracking. You need to have a system in place to keep constant tabs on the products in your warehouses and stores, where those products are going, where they’re coming from, and even their current condition. The more data you gather, and the more seamlessly you gather it, the better.
Most inventory management systems also have built-in support for purchasing management. Using current data sets, you can plan your next purchase, connect with your suppliers, submit a purchase order, and even follow up to make sure your purchase orders were fulfilled successfully.
If you’re in the shipping world, you need to think about how you’re going to get your products into the hands of your customers. When an online user places an order with your business, how and when do you ship the product to them? How do you create tracking codes, and how do you provide those codes to your customers?
4. Order Management
Speaking of orders, a good inventory management system will include elements of order management. Whether placed online or in person, new orders from customers should be effortlessly tracked and managed.
5. Transfer Management
If you have multiple physical locations, such as multiple store locations or multiple warehouses, you need a system in place to facilitate faster, more efficient, and more trackable transfers. For example, if one of your warehouses is low on a specific good, how do you trigger a new transfer? How do you determine which warehouse to send inventory to? How do you track the shipment?
6. Measurement and Analysis
Throughout all these activities, your inventory management system will be tracking data in the background. At the end of each tracking period, you can generate a report that tells you everything you need to know about your past activity. With these metrics, you can identify potential issues, evaluate the cost-effectiveness of your strategy, and make better decisions in the future.
Improving Your Inventory Management System
If you want more efficient inventory management, you’ll need to spend time upgrading your inventory management system.
1. Designate a point person.
Choose one person on your team to be the designated authority on the inventory management front. They may choose to enlist the help of other people and delegate some of their responsibilities, but they serve as the individual in charge.
Centralizing inventory management decision-making is a practical necessity if you want the process to go smoothly.
2. Document your approach.
Too often, inventory management strategies fall apart simply because team members aren’t on the same page. If you want to prevent this and keep your team working consistently, you have to document your approach.
3. Choose the right tech system.
It’s inadvisable to practice modern inventory management without the help of inventory management software. The right software platform will guide you in the creation of your strategy, automate most elements of inventory management, and make it easy to create and distribute new reports.
4. Invest in RFID and automated tools.
RFID chips make it easier to track individual shipments and individual products, as do automated tools like scanning devices. The less manual effort you expend as a team, the better.
5. Train and educate employees.
No matter how many high-tech tools you use in your approach to inventory management, you’re still going to have at least some human beings carrying out your strategy. Accordingly, you need to take the time to train and educate your employees on proper inventory management processes.
Each team member should be thoroughly acquainted with the tools you use to track and manage inventory, the goals of the organization, and the troubleshooting processes necessary to resolve issues.
6. Employ consistent processes.
Try to implement processes that can be easily and consistently replicated. If your day shift and night shift have radically different viewpoints on inventory management or if they track things differently, it’s going to result in a chaotic catastrophe. Therefore, enforce a single system that is predictable and replicable.
7. Track in real-time.
Most modern inventory management systems have the capacity to track items in real-time. When you ship out a product, you can see exactly where it is and where it’s going.
On the other hand, when you’re expecting a shipment, you can predict the specific time of its arrival. When you’re looking at inventory currently on store shelves, you can give customers accurate expectations.
Real-time analytics give you more transparency into how your operation runs, and it can help you identify and resolve any issues that stand in the way of your success.
8. Negotiate new deals with suppliers.
After practicing more effective inventory management, consider negotiating new deals with your suppliers.
For example, is there a way they can get inventory in your hands faster? Can you create an arrangement where suppliers give you smaller, more frequent shipments? How can you save money without overbuying new stock?
If you have good relationships with your suppliers, they’ll want to proactively work with you to find a mutually beneficial arrangement.
9. Get rid of obsolete inventory.
Always take the time to get rid of your obsolete inventory. There’s no reason to keep items that are no longer relevant to your business or interesting to your customers.
There are many ways to liquidate this inventory, such as offering it for a steep discount, reusing the inventory for some other purpose, or recycling or disposing of the inventory.
10. Learn from your reports.
Understand the value of your inventory management reports. Many of the numbers and details from these reports may seem inconsequential. However, the truth is that they can tell you valuable information about how your business is running.
11. Keep changing.
Agile, flexible inventory management systems tend to be much more effective than their stagnant, unchanging counterparts. As a result, you’ll have much more wiggle room for incorporating new technologies, experimenting with new strategies, and correcting issues that hold your team back from their productive potential.
Technologies to Watch in Inventory Management
Inventory management is set to grow even more sophisticated and powerful in the near future, thanks to the onset of new innovations and technological developments.
If you want to get even more value from your own inventory management, it’s up to you to keep watching these technologies and incorporate them into your system when appropriate.
Machine Learning and Artificial Intelligence
Machine learning and artificial intelligence are both designed to bring smarter processing and predictive functionality to the inventory management world. As a result, with pattern recognition, intelligent predictions, and more sophisticated automation potential, you can manage inventory more reliably and with far less manual effort required.
Most people only know the blockchain for its applications in cryptocurrency. However, the blockchain system can be used for a wide range of business applications. For example, the “shared ledger” system of the blockchain makes it easier and more efficient to track transactions, which could be exactly the tool your system needs.
The Internet of Things
RFID chips, scanners, and other smart devices are in warehouses all over the country. But next-generation “internet of things” technology is going to be even more comprehensive, enabling new techniques and management approaches for businesses willing to upgrade.
However, better inventory management doesn’t always come easy or cheap.
However, if you’re willing to spend some time and effort upgrading your systems and processes, you can end up in a much better position. In the same vein, improved inventory management means higher efficiency, lower costs, and perhaps best of all, better customer relationships, so there’s no excuse not to invest in it.