Many small and medium-sized businesses struggle with inventory management challenges, but how can they know if a technology solution is the answer? To help come to grips with this important question, we spoke with Joseph Powell, ERP Solutions Manager with longtime Sage partner Kissinger Associates, Inc.
Your business might need an inventory management solution if…
First off, let’s understand the importance of inventory management, whether you’re managing it with software or a spreadsheet, or not at all!
“It’s very important that small and medium-sized businesses have comprehensive inventory management because they don’t want to tie up capital in unnecessary inventory carrying costs,” Powell advises. “Many companies simply don’t have the resources to own or lease their own facilities and end up operating a larger—and more inefficient—warehouse than they actually need. Inventory management spreadsheets are a good start, but they’re still prone to errors and a time drain to maintain. Companies should spend their time analyzing the data, not compiling and updating it.”
The benefits of good inventory management
When it comes to inventory management, you probably want to carry the least amount of inventory possible while still being able to meet customer needs. As a small business, that usually means carrying some safety stock (that’s one reason a min-max system is usually more realistic for these businesses than an ultra-lean just-in-time system.
“Since the goals and methods are usually pretty easy to identify,” Powell notes, “most of the effort goes into improving inventory efficiency and decision making.”
Good inventory management, according to Powell, is all about “identifying a more efficient process that cuts out steps but still produces the same or better results. Really, what everybody needs is more time to do the things that they need to do, and when you’re looking at a warehouse and fulfilling orders, the most important thing is getting the orders right and getting them out quickly so you can get paid for it, replenish your inventory, and make a profit.”
Is inventory management software right for your business?
So, what are the characteristics of a business that could benefit from inventory management software? Is there a list of minimum thresholds (for example, inventory items, sales levels, shipping volume, number of suppliers) that would indicate a business could benefit from inventory management software?
Powell prefers to reframe those questions: “We begin our engagements with customers by studying their inventory processes; that usually tells us more than just looking at the numbers would. We tend to think first about process challenges when thinking about a possible software solution.”
Powell and his team ask customers and prospective customers a lot of process-related questions when assessing needs and engineering a solution; businesses that identify with many or most of the scenarios outlined in the questions below could usually benefit from some combination of software solution together with process re-engineering:
- Are you experiencing stock-outs that prevent you from fulfilling orders?
- Do you experience frequent inventory errors (too many or too few items; mislabeling; missing inventory; items not where they’re supposed to be)?
- Do you know, think, or just have a feeling that you have excess inventory on hand? Maybe because you ordered too much of something that, although it will sell, it might take a year and a half to deplete the stock on hand?
- Do you have slow-moving inventory or dead stock—the stuff that’s just not moving at all?
- If you have multiple warehouses or locations, are the controls and processes the same at each of them, and are they rigorously applied and audited?
- Is your warehouse designed well for the inventory it holds? Could you make more room by removing non-inventory items (like old machinery), or even consolidate locations with improved floor design?
What top inventory management software should deliver
When a business moves from using spreadsheets to software, what kind of results can it expect? A huge improvement in the accuracy of their inventory data is the first benefit Powell lists. Beyond a reduction in errors is improved decision making. According to Powell:
“Managing the inventory in a spreadsheet is only as good as the eyes that are on it. You can have tons of inventory but the wrong mix of inventory; instead, what you want to do is increase the inventory that’s going to sell and decrease what won’t sell. And software can really help with that by analyzing not just what your inventory is, but also by monitoring your current sales and your historical sales. The software could also be looking at potential sales and forecasts based upon the years of history in the system—the software can project out, and you can also manually adjust those projections if you want to account for promotions or sales campaigns.”
Joseph Powell’s experience is a good reminder that software isn’t a cure-all or a panacea for processes in need of improvement. What’s important is to optimize processes where needed and have a firm grasp on inventory goals: only then can a business put software to work in getting the right inventory mix at the right levels, all in the name of exceptional customer service and sound financial decisions.
Joseph Powell is the ERP Solutions Manager at Kissinger Associates, Inc. Joe spends his days helping organizations become more profitable by streamlining business processes and implementing effective technology solutions. His expertise and exposure to clients in many different industries makes him a valuable member of the team when clients engage him for help with business process improvements, financial and operational reporting systems, Enterprise Resource Planning (ERP) systems. As a former auditor and Director of Finance, Joe solves business challenges with a multi-disciplinary approach, marrying exceptional accounting and finance knowledge to strong business technology skills. His strengths offer a powerful combination for clients, who also enjoy his contagious enthusiasm for achieving results. Joe graduated from Alvernia College (now Alvernia University) in 1993 with a BA in Accounting and Business Management and Administration. He is a Certified Public Accountant, Chartered Global Management Accountant and a member of the AICPA and PICPA. Contact Joe at [email protected]