There’s no question that inventory management is an absolute must for your business. And this is true regardless of the size of your business.
If you’re new to the world of business ownership, we want to help you understand exactly why you need solid inventory management.
In this article, we explain the benefits of strong inventory management practices and detail why you need them in yours. We also explain the role of the inventory management system and provide you with tips for choosing the best system for your business.
What Is Inventory Management?
Inventory management is the art of planning the purchase, storage, and sales of inventory. This applies to anything from raw materials to finished products.
In doing so, you can make sure that the correct type and quantity of inventory are available without holding excess inventory and thus not taking up unnecessary cash.
If done correctly, inventory management can save your company money. You might be asking what the primary purpose of inventory management is.
Essentially, the main purpose of inventory management is to ensure that there are enough goods or materials to meet demand without increasing your overstock.
Accurate inventory management is the key to successful product business development. And regularly tracking inventory helps avoid inventory errors and other problems.
With that in mind, let’s explore the following benefits that come with solid inventory management:
With reliable inventory management, you can understand inventory conditions and order only the amount of inventory needed to meet demand.
You can quickly discover sales trends or track recalled products or items with expiration dates through inventory tracking and control. This is a huge benefit that will help you in your efforts to provide optimal customer service.
Better Customer Experience
Customers who receive orders on time are more loyal. And loyal customers are likely to tell friends and family about their experience, thus potentially increasing your customer base.
Better planning and management can help companies minimize the number of days (if any) that products are out of stock and avoid overstocking.
Stock costs you money until you sell your products. Carrying costs are things like storage handling and the cost of transportation, insurance, and employee salaries.
Your inventory is also at risk of theft, as well as loss from natural disasters, or becoming obsolete.
Inventory management helps track inventory and out-of-stock items so that you won’t suffer overselling products.
Better Terms with Suppliers and Vendors
Inventory management also provides insights about what products are selling and how many you sold. Use this knowledge as leverage to negotiate better prices and terms with suppliers and vendors.
A good inventory management solution can save time available for other activities. And by focusing your attention on other pressing matters, you will have a much better handle on productivity.
Thus, you will see improved operations throughout your business, ensuring less downtime and more production.
More Organized Warehouse
As a business owner, you want an efficient warehouse that organizes items according to demand. These items are usually sold together and include other factors that can reduce labor costs and speed up order fulfillment.
The single most important goal of any small business owner is to increase profits. A better understanding of availability and demand will lead to higher inventory turnover rates, leading to greater profits.
Moreover, this is a benefit that you’re likely to improve as you become more familiar with your inventory management system and its functions.
The more experience you have with your system and its software ensures a more streamlined approach to inventory management.
Benefits of ERP Integration
Solid inventory management can help you save money and maintain accurate inventory quantities. However, when you add an ERP (Enterprise Resource Planning) system with inventory management capabilities, you will see even more benefits.
With this type of system, you will be able to:
Understand Your Inventory Levels
ERP systems can provide an end-to-end view of orders for all departments, from sales to accounting to fulfillment.
Centralized procurement reduces the repetition of replenishing inventory, and the ability to purchase in batches can save your business money.
When you integrate inventory software with accounting and back-office processes, there are even more benefits.
Optimize All of Your Inventory
A powerful inventory management software system helps to maintain the correct combination of inventory and quantity — all with the best cost of ownership. It will help you ensure that you never have too much or too little on hand.
Automated Manual Tasks
Bar code and RFID scanning can speed up your inventory processes, from receiving to fulfillment. Using software can reduce manual input errors and free employees from repetitive tasks.
By forecasting demand and lead time, you can ensure that there will never be a shortage in production. This in itself provides fewer risks of loss, as your system keeps you moving forward with continual production.
Real-Time Data and Transparency
The right inventory management software gives you access to real-time information for all SKUs in all facilities. No matter where you are, it will transmit this data to all devices.
Software that handles data collection and analysis can provide insight into trends. When you understand the trend, you can improve your inventory forecast.
Expand Inventory as You Grow
You can’t manually and accurately track hundreds or thousands of SKUs across multiple facilities. Let inventory management software handle these kinds of tasks for you.
Use the analysis function of inventory management software to make data-driven inventory decisions. Save money by reducing transportation costs and inventory.
Coordinate Multiple Inventory Locations
Know the inventory levels of all your warehouses, distribution centers, retail stores, and suppliers.
Ensure Compliance with GAAP: The correct valuation of stocks is essential for financial transparency. Inventory management software provides the accuracy required by GAAP (Generally Accepted Accounting Principles).
Improve Your Visibility of Recalls
A digital inventory management system allows managers to use batch or serial number records to track products by date and location.
As such, you can keep a close eye on things like recalls to ensure that you are providing the best — and safest — customer service possible.
Are There Any Downsides?
The shortcomings of the inventory management system are the same as other software. Solutions can be expensive, difficult to learn, and vulnerable to hacker attacks.
However, simple protective measures can alleviate weaknesses:
Risk of System Crash
This is always going to be a potential problem when using systems of any kind. The good news is that you can eliminate the risk of data and productivity loss by using a cloud-based platform.
Learning Is Complicated
Business software is sometimes challenging to learn. However, managers can help users get started quickly by investing in online training.
This will give you and your team a head-start so that productivity loss is reduced or eliminated.
Expensive for Small Businesses
The cost of inventory management software may seem daunting for small businesses, but the investment usually pays for itself by improving profits and customer loyalty.
In addition, cloud-based systems make software once the domain of large enterprises available to small businesses.
Malicious hackers are also likely to be an ongoing risk to all businesses. Because such violations pose risks to vendors, cloud-based software generally provides higher security than individual companies.
Reduce Physical Audits
When you automate some warehouse operations, it is easy to skip physical inventory checks. Solve this problem through regular audits.
Choosing the Right Inventory Management System
Selecting the best inventory management software requires several basic steps. First, you want to define your inventory management needs.
Next, establish who will use the software and consider any necessary integrations, such as EDI (Electronic Data Interchange).
Finally, look for software that has three basic functions:
- Automatic replenishment
- Cycle counting
In today’s environment, inventory planners require data collection in near real-time. They also need reporting and analytics at their fingertips. When choosing a system, it’s good to read reviews from other companies regarding their experiences with inventory management systems.
This will give you a clear understanding of how several systems operate, their ease of use, features, drawbacks, and more.
The need for inventory management is not something you want to overlook in your business ventures. By mastering the art of inventory management, you can provide better customer service, increase traffic, and improve sales.
This isn’t something you’re going to learn overnight. But with the right inventory management system, you will have a much easier time learning and improving your handling of the system and your stock.
If you’re interested in more helpful tips on running your business, be sure to head over to our blog page.