Not having enough stock results in stock-outs. Orders come in, you don’t have the items the customer wants, and then a scramble ensues to expedite higher-priced replenishment––or, possibly even worse, you lose the sale to a competitor who has the desired stock available. Stock-outs carry opportunity costs: the opportunity to sell at the best price, and the opportunity to sell at all.
On the other hand, holding excess stock carries costs because the inventory you stock has to be warehoused, insured, secured against shrinkage, depreciated, and taxed as an asset. Excess items generally cost the business an additional 25% to 50% per year. Excess stock carries opportunity costs as well: the working capital tied up in unsold inventory is unavailable for other purposes.
Why is inventory management important for a business?
Inventory management allows you to keep track of stock in real time so you can maintain proper product balance. Such oversight gives you increased control to make strategic decisions based on customer demand. Without a handle on your inventory, you run the risk of overstocking or selling out—both of which result in profit loss.
Just in time inventory management
Just in time inventory management (JIT) is a strategy used to increase company efficiency by stocking product only as it’s needed for sale. Reducing the amount of inventory stored in the warehouse allows you to avoid product waste due to damage or expiration while decreasing the costs incurred housing and maintaining unsold inventory.
How to improve inventory management
Improving inventory management requires increasing command of your warehouse operations and the physical stock inside it. Here are four things you can work on right away that will improve your inventory management.
1. Evaluate your current practices
Before you can make improvements, take an overall look at your current practices. Effective inventory management is purpose-driven. Understanding what each link in the chain does—and why—allows you to hone in on the specific aspects of your system that need improving. Try consulting with other members of your team to identify potential problem areas and start there.
2. Perform routine stock reviews
A major part of inventory management is simply knowing how much of each item you have in stock. Tracking what you bought against what you sold won’t give you the full picture. Items can get lost, stolen, or damaged after they enter the warehouse—it’s unavoidable. And often, lost items go unreported until the right person takes notice. Remedy this problem by routinely reviewing your physical inventory for accuracy with your records.
3. Systematize stock replenishment
Having a system in place for restocking your inventory ensures you’re never completely out of stock. It’s crucial for the smooth flow of product during busy periods. If you’re not using the just-in-time strategy, you should have a policy to replenish inventory at set levels. Anytime stock of an item falls below a certain number, get the order in. Systematizing the replenishment process avoids having a lapse in product availability between the time you order and receive the shipment.
4. Learn customer behavior
Start keeping track of how often you’re restocking certain items and try to identify any trends or patterns. Depending on your industry, there may be seasonal or other outside factors that affect your product flow. Note the periods when customers are ordering more and when they’re ordering less. Having a solid handle on how your customers behave allows you to stay ahead of the dry spells and mad rushes so you can work on maintaining the right inventory balance at all times.
Taking charge of your inventory challenges could be the key to growing your profits
Many companies rely on an inventory management system to manage their supply chain. So, what are the benefits of this type of system?
You'll delight your customers
Today's digital-savvy customers can instantly compare retailers’ prices online, wherever they are. These comparisons automatically increase pressure on prices, so retailers, distributors, and manufacturers often attempt to stand out based on the quality of service they provide. You can fulfill customer orders quickly and accurately if you have instant insight into stock levels, customer details, shipping information, and more.
Your business will get paid faster
Fulfilling orders faster means you can get paid faster, but keeping on top of invoicing and records of purchase orders can be a time-intensive process, often causing delays and impacting on your cash flow. Automate the process using powerful inventory management systems with accurate live data to make collecting payments a breeze.
You'll maximize profit margins
Making sure you have the right stock, in the right amount, at the right time is one of the biggest inventory management challenges you'll face. Running out, or ending up with excess stock, can prove hugely costly. With the right solution, you can analyze live sales and inventory data instantly to produce quality forecasts in no time at all. This way of working will help you hit your target fill rates, minimize stock-outs, and get the maximum value from your inventory.
You'll manage a more efficient business that grows faster (it's easier than you think)
Better insight into––and management of––your inventory can deliver benefits right across your business. With more accurate forecasting and the automation of many routine tasks, you'll free up time and working capital to invest where it's needed most. And with instant access to live data whenever and wherever you need it, you'll be able to make better decisions across your supply chain.