Inventory Management: Does your business need it?
Inventory management is a broad but familiar term you will hear from practically anyone who is in business. Whether it’s a small retail shop selling office supplies and gift items, a mid-sized company that supplies food products to resellers across different states, or a global clothing franchise with thousands of retail locations across the globe, inventory management is among the most important processes employed to ensure the smooth flow of business.
Manufacturers, distributors, and retailers keep track of their inventory, which is why the term is primarily associated with the day-to-day activities that go on inside a typical warehouse. But other industries also employ some sort of inventory management program even if they are not directly involved in the selling of goods.
Construction companies, for instance, will want to keep track of supplies being distributed across different building projects. Serviced apartments need to know how many towels to keep in stock so they can meet customer demand during peak periods. Janitorial service providers will also want to make sure they don’t run out of cleaning supplies and risk losing their service contracts.
Simply put, inventory management is all about establishing a system which will assure that you have the right amount of goods and supplies at any given time and location, at the least possible cost. It involves finding the right balance between what you have on hand, what is ready to be shipped out, what needs to be reordered or replenished, and what is sitting and taking up extra space in your warehouse.
Whether your purpose is to meet customer demands or ensure the smooth flow of the services you provide, an efficient inventory management system is what you will need to keep your business alive in today’s competitive environment.
The importance of inventory management
To put it bluntly, successful inventory management boils down to reduced costs and increased profits. That’s mainly what you are in business for. When you have an effective inventory management system in place, you can forecast recurring requirements, prevent out-of-stock situations which translate to unrealized profit, reduce overstocks to maximize warehouse space, lessen workloads to save on payroll costs, and put operating capital to better use.
Technology has enabled us to automate these processes nowadays, which is why it is in the best interest of every business to invest in a good inventory management software system to stay on top of its inventory management activities.
The basics of inventory management
To find the best inventory management software system that will suit your business, let us first take a look at some inventory management basics. Inventory management involves a host of variables which all point back to operating costs. Whether you’re into asset management or retailing, your stock normally sits in a warehouse.
Under ideal conditions, you should be getting the most out of your warehouse space at the least expense to your business. It doesn’t matter if you rent the warehouse or own it; just the same, you will want to get the best return on your investment because, in every business, space is money.
Inventory management processes vary across industries, but there are customary practices that you will notice in most, if not all inventory management systems. Let’s take a look at the most fundamental processes being used in effective inventory management:
Gone are the days when one had to manually type out an assigned identification code to access the details of each product in inventory. Barcoding has taken the trouble out of this daunting and time-consuming task.
Barcodes are primarily an optical representation of data which can be read and interpreted by a barcode scanner. It is probably one of modern day’s best inventions that offer a quick, simple, and error-free way to find every single item that forms part of your total inventory.
Save for fresh produce like fruits and veggies, you’ll find barcodes in practically every item you place in your shopping cart. They are often used in combination with other digital product identifiers like stock keeping units (SKUs) or universal product codes (UPCs) for enhanced monitoring purposes.
SKUs are unique alphanumeric codes companies assign to a particular product for stock-keeping purposes. The use of SKUs is limited to internal operations, and their main purpose is to enable warehouse employees to identify items based on a product’s unique attributes. Using SKUs, warehouse personnel will be able to tell if a product from a specific brand or manufacturer is available in a particular size, color, style, material, flavor, and so on.
In contrast, UPCs are provided by the product manufacturers themselves. Whenever a particular manufacturer comes up with a new product or product variant, it will secure a unique UPC for that product from the Uniform Code Council (UCC). As the name implies, UPCs are universal and remain constant no matter if a product sits in a warehouse in the UK, Europe, Asia or the US. Wherever your business stands in the supply chain, UPCs make it easy for you to find the nearest retailers, suppliers, distributors, or warehouses that carry a particular product.
An essential part of every inventory management program, barcoding helps businesses maintain ideal inventory levels and aid with other vital procedures such as cycle counting, quality control, and asset tracking.
Whether you’re receiving deliveries or shipping out orders, it is important for your warehouse personnel to know where to place or retrieve a product quickly. For this reason, where you position a particular item in your store is vital to maintaining an effective inventory management system. Your first step to achieving an efficient warehouse layout would be to label areas, sections, aisles, shelves, and levels so warehouse employees can locate any item spot on.
Warehouse layouts should be established intuitively so your warehouse personnel can carry out their tasks more efficiently. By labeling locations, employees will have a much easier time locating the items they need to pick up. All they have to do is check location labels for particular items in your inventory management system so they can move through the warehouse in an orderly manner.
A well-established inventory management program can also help determine if you simply need to process orders individually, or save time and cost by combining multiple orders via wave picking. In some cases, a batch of orders will involve a lot of identical items in your inventory, so it will be more sensible to pick these items collectively. This will significantly lessen the number of trips to different warehouse sections while reducing costs and increasing productivity.
Receiving, picking, and shipping inventory
Receive, pick, and ship – these are the three most common processes that transpire in a typical warehouse. Day in and day out, new stock arrives and is added to the inventory just as orders are processed, packed, and shipped out. To ensure the smooth flow of these three processes, warehouses typically assigned strategic spaces within the facility to adequately carry out these separate activities.
Receiving. The receiving process involves the acceptance of products or materials ordered from your suppliers and manufacturers. As soon as new stocks are delivered, you will need to check if you received the right items in the right quantities as indicated in your purchase order. Then, you will scan these into your inventory management system which will reflect updated inventory levels for each particular product.
In case you’ve ordered a new product that isn’t in your inventory list yet, you will first need to create an entry in your inventory management software system and add the pertinent details and identification codes.
Additionally, you will have to assign a location label, so warehouse employees will know where to stock them as soon as they leave the receiving area. With all these in place, you can now add the corresponding quantity for this new item in your inventory and move them to storage.
Picking. The picking process is that part of order fulfillment where warehouse employees, also known as “pickers,” physically pick out items that have been ordered by customers. These are usually supplied in a picklist that includes the item code and its location in the warehouse. To update the inventory management software system, pickers will need to do a scan to make sure they have retrieved the correct product. They must also scan the location label to ensure that the particular item has been retrieved from its assigned location. The retrieved orders will then be on their way to the packing and shipping section.
Shipping. The packing and shipping process involves reviewing customer orders and making sure that the correct items have been picked out. Afterward, a warehouse employee prints out a shipping label that includes the selected shipping option. Orders are then packed, labeled, and prepared for pickup or delivery by an assigned courier.
How inventory management varies across different business types
When we think of inventory management, the first thing that comes to mind is a system that oversees and controls the purchase, storage, and distribution of the products in a warehouse. However, inventory management processes can differ depending on the type of business you are engaged in.
For comparison purposes, let us review two of the most common warehouse structures that rely heavily on an inventory management system: retail warehouses and asset management warehouses.
Retail warehouses are what you actually have in mind – facilities that store products purchased from manufacturers and are eventually sold or delivered to retailers and end users. Large players like supermarket chains, discount outlets, and department stores, as well as major online sellers and e-commerce sites, maintain this type of warehouse and employ inventory management programs to run their businesses.
Asset management warehouses are where businesses that don’t necessarily sell products to consumers keep, oversee, and manage their company assets. A couple of great examples would be a serviced apartment business that needs to keep track of its appliance inventory or a material handling provider that wishes to monitor how many forklifts, stackers, or tow
tractors have been leased out over a particular period.
Different business structures also require different inventory management styles. Let’s take a look at two methods commonly used for retail and asset management warehouses.
Materials Requirement Planning (MRP)
Materials requirement planning is all about forecasting the future needs of a business so it can effectively meet the demands of its customers. This is achieved by planning, scheduling, and maintaining ideal inventory levels based on historical sales data. That way, cash isn’t tied up to excess inventory and may be used for other business opportunities. This sales forecast-based inventory management system also helps prevent out-of-stock situations, so the business does not miss out on potential future sales or services.
Excess inventory isn’t just money sitting still in a warehouse. It also means extra work for warehouse employees and even added utility costs to keep inventory in good condition. Just-in-time inventory is a management system designed to prevent these situations that could place an increased burden on your business. By having just the right amount of inventory delivered to satisfy immediate customer demands, businesses can dramatically reduce warehousing costs.
The JIT system requires smooth collaboration between retailers and their suppliers. That means both parties should be in constant touch with each other regarding critical factors such as product availability and shipping times. For instance, a simple setback such as erratic weather or transportation issues can result in stock outages and put the business at risk.
Inventory management styles applied
The Internet isn’t lacking in resources that explain the concept of inventory management, but nothing can give you a better understanding than real-life situations that apply its principles. Let’s use washing machines as an example and see how inventory management styles on one and the same product can differ depending on the nature of the business.
Because sales drive the nature of the business, washing machine stocks come and go at a faster rate in your typical retail warehouse. Here, the goal of successful inventory management is to ensure that you have just the right number of washing machines of a particular brand, type, model, and capacity to fulfill orders from your customers. Washing machines take up a lot of floor space in a warehouse, so having optimal inventory levels will help prevent overstock and out-of-stock scenarios with less space usage.
You can customize your SKUs to reflect vital information that helps keep you on top of your inventory on a day-to-day basis. Furthermore, your retail warehouse will benefit from using the JIT model to reduce the time each washing machine unit sits idly in the facility. When you know how many units you have on hand, how many are being processed for order fulfillment, and how many are to be distributed to other retail locations, it will be easier to forecast reorder times and save in terms of warehouse space and other inventory maintenance costs.
Inventory management takes on an entirely different approach when managing assets for a company or business. Let’s imagine you’re running a serviced apartment complex offering short-term and long-term stays to travelers and transient businessmen. You have all the amenities in each unit, and you also maintain a small warehouse where you keep stock of extra necessities like coffee pots, ironing boards, washing machines, and cooking ranges, among others. You can customize SKUs for these items to reflect their manufacturer, type, model, color, amount and year purchased.
While you don’t sell these products to end users, you’ll want to keep track of where they are and what state they’re in at any given time. It’s approaching peak season for occupancy and you wish to find out if all of your washing machines can make it through this period of intensive use. You also need to make sure you have enough working units at the warehouse in the event of possible breakdowns.
The MRP method works best for these low turnover scenarios. By using historical data, you can determine if a particular unit is still up to par or nearing the end of its service life. By simply referring to their SKUs in your inventory management system, you can also decide whether to have a defective unit serviced or simply retire and replace it with a new one.
Get the job done with an inventory management software system
By now, you surely have a clearer picture of where your business stands when it comes to deciding if you should invest in a reliable inventory management software system.
Inventory management goes beyond just knowing how much inventory you have on hand.
You also need to predict when items are likely to sell out so you can order new stock and prevent out-of-stock situations. When to place your orders so you don’t overstock is another thing. So is finding out what items in your inventory are selling fast or moving quite slowly. You also have to determine how much it really costs to store all those goods in your warehouse because all businesses work with a budget.
The right inventory management software system takes the guesswork out of these complicated processes. They come with easy-to-use functions and tools that automate and simplify stock processing and monitoring to give you greater control over your inventory.
With an inventory management system in place, you drastically reduce inventory costs, increase productivity, and have more time to concentrate on other important aspects such as predicting trends and exploring new opportunities to market and grow your business.
Speak to our guru for advice on choosing the right inventory management system.