Today, retail businesses face cut-throat competition in almost every aspect of business. One such crucial part is maintaining operational efficiency by optimising their supply chain. Implementing an effective Inventory Management Systems (IMS) brings operational excellence and strategic growth by transforming how a firm handles its Inventory.

A great inventory management process saves money and time. When done right it also improves cash flow and the customer experience.

Inventory management systems: The definition

Inventory management — a crucial component of supply chain management — is the process of tracking stock levels and the movement of goods, whether it be delivering raw materials to manufacturers or fulfilling orders of finished goods.

The primary goal of inventory management is to ensure that a business has the right amount of inventory to meet demands while minimizing inventory costs.

Inventory management is the fundamental building block to longevity, helping businesses to minimize costs, improve cash flow and boost profitability.

Process of Inventory Management

Steps to creating an effective inventory management plan

• Receive & Inspect:Raw material and subcomponents for manufacturers or finished goods for consumers.
• Sort & stock:Inventory is reviewed, sorted and stored in their respective stock areas.
• Monitor Inventory level:Through physical inventory counts, perpetual inventory software or cycle counts and helps minimize the chance of error.
• Accept material or orders request:
• Pick up & Fulfill orders:Necessary goods are found by SKU number, taken from stock and shipped to the manufacturer or customer.
• Update Inventory levels:Using a perpetual inventory system, one can automatically update inventory levels and share with necessary stakeholders.
• Reorder new stock:Low stock level trigger purchasing or ordering as needed.

Inventory Management Techniques

With higher SKU counts or order volumes, inventory management can become complex, encompassing several techniques and strategies. Let’s take a look at some inventory control techniques to choose and utilize in warehouse.

Economic Order Quantity

Economic order quantity (EOQ) is a formula for how much inventory a company should purchase with a set of variables like total costs of production, demand rate and other factors. The formula identifies the greatest number of units in order to minimize buying, holding and other costs.

Minimum Order Quantity

Minimum order quantity (MOQ) is the smallest amount of inventory a retail business will purchase in order to keep costs low. However, keep in mind that inventory items that cost more to produce typically have a smaller MOQ, as opposed to cheaper items that are easier and more cost effective to make.

ABC Analysis

This technique splits goods into three categories to identify items that have a heavy impact on overall inventory cost.

Category A is most valuable products that contribute the most to overall profit.

Category B is the products that fall in between the most and least valuable.

Category C is for small transactions that are vital for overall profit but don’t matter much individually.

Just-in-time Inventory Management.

Just-in-time (JIT) inventory management is a technique in which companies receive inventory on an as-needed basis instead of ordering too much and risking dead stock (inventory that was never sold or used by customers before being removed from sale status).

Safety Stock Inventory.

Safety stock inventory management is extra inventory that is ordered and set aside in case the company doesn’t have enough for replenishment. This helps prevent stock-outs typically caused by incorrect forecasting or unforeseen changes in customer demand.

FIFO and LIFO.

LIFO and FIFO are methods to determine the cost of goods. FIFO, or first-in, first-out, assumes the older inventory is sold first in order to keep inventory fresh.

LIFO, or last-in, first-out, assumes the newer inventory is typically sold first to prevent inventory from going bad.

Reorder Point Formula.

The reorder point formula calculates the minimum amount of stock a business should have before reordering. A reorder point is usually higher than a safety stock number to factor in lead time.

Perpetual Inventory Management.

Perpetual inventory management is simply counting inventory as soon as it arrives to deliver real-time insights.

It’s the most basic type of inventory management system and can be recorded manually on pen and paper or an Excel spreadsheet. Or, by using handheld devices that scan product barcodes and RFID tags, one may use an inventory system that automates inventory balances as soon as stock is moved, sold, used or discarded.

Demand Forecasting.

Demand forecasting is based on historical sales data to forecast customer demand. Essentially, it’s an estimate of the goods and services a company expects customers to purchase in the future.

Cross-Docking.

Cross-docking is a technique whereby a supplier truck unloads materials directly into outbound trucks to create a JIT shipping process. This essentially eliminates warehousing, and there is little to no storage in between deliveries.

Advantages Businesses Can Leverage by Using Inventory Management Software

There are several advantages of incorporating inventory management software. Some of the essential ones are as follows:

Accurate Inventory Records

Inventory management systems (IMS) help fulfill customer orders and track products across various production, storage, and sales stages. Many of these systems also function as point-of-sale tools, capable of processing payments and integrating with existing systems. When a firm maintains precise inventory records, it reduces internal management costs and breeds more potent relationships with customers and partners.

Cost Minimisation

Businesses often end up stocking more goods than needed, which leads to paying additional costs. The purpose of inventory management systems is to help reduce these extra costs by preventing overstocking. These additional expenses include fees for storing surplus inventory over a prolonged period in a rented warehouse, wages associated with excess stock management, insurance expenses for rented or leased warehouses, and increased transportation costs for moving surplus Inventory.

Greater Customer Satisfaction

Businesses can fulfill customer orders quickly and efficiently with an accurate inventory management system, enhancing the customer experience. Happy customers equate with repeat orders and customer loyalty. It strengthens the relationships with customers and creates a fonder brand image.

Improved Production Processes

Introducing effective Inventory Management Software reduces the number of errors in the production process. With an improvised production rate, firms can provide higher-quality products at a faster pace. Moreover, the purpose of an inventory management system is to reduce the burden on the company’s labour and staff. It allows them to impart more time to other areas as well, which increases the overall efficiency of the business.

Automation of Processes

Another advantage of this software is having the inventory management processes automated. The purpose of inventory management also includes automating the process to downsize labour costs, minimise errors and provide more accurate stock tallies. It eliminates the need for manual counts, reducing the risk of fraudulent behaviour and human errors.

Enhanced Data Security

Data breaches and cybersecurity threats are highly likely to occur when maintaining inventory records. The inventory management system provides multiple layers of data security by providing users with restricted access to the company’s inventory. Such permissions help prevent the potential costs of data breaches and ensure that internal operations remain private. It safeguards companies against cyberattacks and streamlines error troubleshooting.

Better Organisation and Systematic Approach

Inventory management systems also help facilitate better organisational structures. It enables the employees to categorise products based on size, shape, name, or other relevant parameters. Systematically organising the stock further allows the business to streamline order fulfillment while accurately fulfilling orders and tracking products.

Efficient Coordination Across Locations

An advantage of inventory management systems involves promoting organisation and coordination between different facilities for businesses with multiple warehouses or retail locations. The improved coordination helps reduce costs, enhance sales, elevate the brand’s image, and attract new customers.

Improvised Data Visibility

An IMS effectively increases data visibility for a company’s executive team. The heightened visibility enables responsible managers to make more informed business decisions. It leads to fewer errors, such as identifying discrepancies in inventory counts.

EXPRESS 3PL: Reliable partner to manage inventory and optimize supply chain

Whether a brick-and-mortar, ecommerce or multichannel retailer, inventory management is crucial if businesses want to seriously compete. Without implementing inventory management techniques, it will never get ahead.

EXPRESS 3PL with its proprietary inventory management system helps businesses manage stocks efficiently by tracking existing inventory systematically, reducing costs and impacting efficiency across the supply chain.

Our focused and technically advanced 3PL services guide businesses to track essential metrics and present data that improves inventory levels at real time and keep business ahead of growth curve.

Connect with our experts at EXPRESS 3PL to know more.