Inventory management is one of the most critical functions in any organization. An effective inventory management system enables organizations to react swiftly to market demands and also bring in substantial cost reduction through optimal stock holding. An inventory that falls short translates to lost sales opportunities, while a surplus inventory entails unnecessary operational costs in terms of handling, transportation and storage.
A Supply Chain research study shows U.S. companies have an average inventory versus sales ratio of 1.43. This means for every dollar of sales made, the company holds $1.43 worth of inventory. Among small businesses, 46% did not have an automated inventory management system.
The following strategies can help companies improve and optimize their inventory management for better results:
There are many tools and platforms available in the market today – both enterprise level and cloud based – that automate the inventory management process and minimize the need for manual intervention. The right tools can bring precision into the process and prevent errors that happen due to human oversight. Also, they help manage inventory across various channels like physical stores, online stores and mobile apps.
Data analytics is increasingly being used in optimizing inventory management. It helps companies to look at inventory from an organizational level instead of a branch level. It uses real time data to predict market demand, which can help companies scale their inventory up or down on time, resulting in profits and cost benefits. Inventory managers can utilize the unique insight derived from data analytics to move or reallocate inventory and capitalize on market opportunities.
It pays to take a granular look into your inventory to segment products based on their characteristics like market appeal, profitability, and supply versus demand pattern. The rate at which a depleting inventory is replenished can be decided based on this segmentation. This strategy helps in maximizing profits and minimizing operational costs on less profitable products. The more criteria a company uses to classify its products, the more refined and profitable is its inventory management.
Mobile applications that interact with inventory real time can be used by store managers and associates to accurately track stock, improve customer service and plan offers and promotions. Mobile inventory management allows tracking and update of inventory at the most rudimentary level, apart from providing real time inventory information, product details, brand information, etc., to the store associates. Having ready access to such information empowers store associates to engage better with customers, encourage purchase decisions and generate leads.
Inventory optimization software takes an organizational level view of the inventory instead of a localized branch or store level view. It uses historical data to determine probability of demand, which helps inventory managers to maintain optimal level of inventory and reduce risk of product obsolescence. The inputs from the optimization software can also be used to revise inventory management policies to make them more effective.
Suppliers should be audited periodically to ensure consistent, timely and accurate delivery. The categorization of a product should also be frequently reviewed to accommodate recurring changes in demand and supply. Companies that have an effective and efficient inventory management process will be better equipped to meet sales opportunities and generate high profits.