Businesses, regardless of their industry, often ignore inventory control. And, it is incorrect to think that inventory control majorly impacts the retail sector only; inventory management and control is an essential requirement for numerous industries regardless of whether you are a B2B or B2C business.
So, you mustn’t take it lightly. At the granular level, the processes that makeup inventory control might differ, but their objective remains the same – ensuring that your business maintains optimal stock levels and your supply chain is functioning seamlessly.
Importance of Inventory Control
Here’s a stat that should make you sit up and take notice – 43% of small businesses ignore inventory tracking or do so with a manual process; this is a massive number.
What these businesses do not understand or choose to ignore is the fact that lack of inventory control can result in severe losses for their business. But it’s not just small businesses that are doing inventory management wrong; even enterprise-level companies sometimes fail to optimize inventory management.
So, why is inventory control so important? The answer lies in the foundation of market economics – demand and supply. Your business will only survive if it can maintain a perfect balance between supply and demand.
Imagine a situation wherein the demand is higher than the supply. In this case, you run the risk of losing your customers. On the other hand, imagine a scenario wherein there is more supply and less demand. In this case, you are losing money because you have more money invested in inventory that isn’t seeing demand, and you still have to spend money on transportation, labor, and other overheads.
The reason above is why inventory management is critical for a business, any business, regardless of their size, scale, or scope.
So, how do you improve inventory control? How do you ensure that inventory management functions seamlessly?
Here are ten tips you must consider:
According to Global Market Insights, the inventory management software market will be worth $3bn by 2024. One of the reasons why inventory control tools are becoming more popular is because organizations have realized that implementing the best inventory policies is the only way to keep their expenses in check.
Wait there is more, a well-managed inventory results in an extremely well-managed supply chain.
Today, there are inventory control systems available that bring a wide array of features to the table. They consider everything from demand, supply, and more, to identify the ideal levels of inventory that should be kept, thus helping your business sell efficiently and understand your buyers better.
You must focus on deploying tools that automate various integral inventory management processes and work with minimal human intervention. Thus, helping you free up your time for other critical activities, such as making more money.
Also, your inventory control tool should be able to offer actionable insights that help in results-oriented decision making.
Some businesses fall into the trap of treating all SKUs the same. It’s important to understand that a necessary step in inventory management is to divide your products into distinct categories.
Here are a few articles for you to learn more:
Not all products are going to have the same demand. Some products have seasonal demand, while others are evergreen products meaning their demand is not impacted throughout the year.
There are still other products that are trend-based. They might experience huge demand at a particular point in time, but the demand soon disappears. So, the key here is to divide your products into groups based on their demand and profitability.
Here’s a hypothetical scenario that can help divide your products in a more meaningful manner – If you find 30% of your products are making up 75% of your revenue, then these products must be clubbed together. More attention must be placed on this particular product inventory.
The point we are trying to make here is that you must give importance to the most sales worthy and profitable products in your portfolio.
You can assign resources to the most profitable products and not invest more time and attention to the less profitable products. You can also optimize your forecasting and stocking policies based on product demand and their categorization.
Safety stock, also known as buffer stock, is critical to your sales efforts. It is based on factors such as the average consumption of your inventory, vendor delivery times, factoring reorder timelines and more.
Some businesses use the ‘rule of thumb’ method to calculate the ideal safety stocks while others use complex statistical formulas to ensure the ideal amount of safety stock. The key here is to standardize your safety stock formulation and use it all times.
We talked about inventory control systems in the first point; advanced inventory management systems make it easier to zero in on the necessary safety stock levels.
Calculating your buffer stock helps you guard against sudden changes in demand and/or supply and protects your businesses in case you have made some forecasting errors. Your supply chain isn’t disrupted and in the case of manufacturers, their manufacturing processes are not put under pressure because there is a sudden demand for a particular product.
Getting rid of the stockout problem means customer satisfaction levels are always high, and your customers aren’t leaving for your competitors.
A critical process that has a significant bearing on inventory control is warehouse management. Lack of warehouse management can shoot up product delivery times and leads to mismanaged inventory, while effective warehouse management can speed up order fulfillment.
Ideally, your in-demand items must be placed closest to the dispatch area and must be made more accessible as compared to slow-moving items. Also, the storage solutions in your warehouse must be structured in such a way that they can be easily moved by the warehouse workforce.
The focus should also be on categorizing the storage (all inventory must be clearly labeled) so that the workers handling orders in the warehouse are never confused when looking for a particular product. They know exactly where they will find it in the warehouse.
The key here is to give due importance to warehouse management. Effective warehouse management plays a huge role in improving inventory control.
The use of third-platform technologies is driving the digital transformation of key business processes. It’s time you started leveraging their potential in improving inventory control.
Your business must adopt the use of disruptive technologies to granularly monitor your inventory at all times. One such notable technology is mobile. The use of mobile technology can help you track stock movement in real-time and also keep your inventory records updated as soon as there is a change.
Mobile usage prevents time wastage and stock-keeping errors. Furthermore, you can immediately identify if a mistake has happened and correct it.
Another benefit of making good use of mobile devices for improving inventory control is that your sales teams can keep themselves updated about order processing form their mobile phones.
You can also ensure any other team participating in revenue generation activities is updated on the inventory data. This improves the overall efficiency of your business processes as all stakeholders are aware as to where the business stands with respect to product inventory.
A mobile device in the hand of the personnel working at the ground level can permanently remove the need for people to monitor the inventory management system continuously. All information in this system can be made available to the personnel on the ground through their mobile devices.
Yes, inventory control is super important, but while improving your inventory management, see it through the prism of your supply chain. Something as simple as ensuring the timely delivery of your products from suppliers will go a long way in ensuring effective inventory control.
It’s not enough that you sign comprehensive SLAs with your suppliers; you need to be able to enforce them to make sure they deliver on their promises. Also, do not just focus on the timeliness of their delivery schedules; you must also ensure that there are no errors concerning the quantity received.
You do not want to end up in a situation wherein you have ordered 100 crates of apples, and the supplier delivers 80.
So how do you ensure efficiency in your supply chains? The answer lies in building meaningful and value-added supplier relationships and being able to monitor supplier activity. Focus on your reliable suppliers and stop working with unreliable suppliers.
Also, focus on conflict resolutions and in making sure that you are able to solve a particular supply-side problem. Work with suppliers jointly to ensure you can fulfill your inventory needs. Also, it pays to act smart. If you are working with unreliable suppliers who don’t stick to their delivery schedule and are prone to making (consciously or unconsciously) fill-rate errors, just hold more inventory of your fast-selling items.
According to a study titled ‘Communication Barriers in the Modern Workplace’, communication breakdown results in a lack of sales, low performance, increased stress levels, and low company morale.
All of these detrimentally impact your bottom line and top-line growth.
How’s your communication across the supply chain, and all the departments that are in one way or the other linked to inventory control? Is essential information related to inventory management being passed downstream and upstream?
Think of a situation wherein the sales teams have bagged a huge order for a much-in-demand product. In this case, you need to make sure that the supplier or your production facility gets this information as soon as possible. Poor communication can result in a lack of product inventory and an inability to meet sales requirements.
As a business, you must use proactive communication to ensure inventory stakeholders have all the information they need to make quick and informed decisions.
There is absolutely no doubt, improving your inventory management processes is of paramount importance, but while doing so, think about scalability.
You will always have a positive outlook for your business and therefore plan for business growth. If you only plan for the present, there is a very good chance that your inventory control practices won’t be aligned with business growth and will prove to be inadequate in the future.
Invest in a long-term inventory management strategy that involves the deployment of an advanced inventory management system. You do not want to end up in a situation wherein you have to rework your inventory control system again and again to handle the evolving demands of your growing business. This will result in a loss of valuable time that can be better spent elsewhere.
All businesses have slow-moving items in their stock. Over a period of time, some of these items become out of date; these items remain forgotten in warehouses, occupying valuable space and utilizing labor and resources. As a business, you are losing money on such items.
Proper inventory management is about setting up a system in place which helps you identify slow-moving and obsolete items and getting rid of them. E.g., when you identify a bunch of slow-moving items, it will be great if you can immediately put them on sale. You could also push them to retailers who specialize in such products.
The goal is to get rid of the slow-moving items so that you can focus more on the best selling items or the items that generate the most profit for your business.
Often businesses are so consumed by inventory management that they forget the basics, such as the safety and security of inventory.
As a business, your inventory is your most valuable asset. You must ensure that it is kept in perfect condition and is not damaged in any way or form when it is stored in the warehouse. If you are selling products that have an expiry date (food products), then exceptional care must be taken so that they remain fresh until their expiry date.
You must also pay attention to the overall security of your establishment to ensure unauthorized elements cannot access your inventory. You don’t want your inventory to get stolen.
If you are in the process of improving your inventory management system/process/control, make sure you do not miss anything. Don’t miss the small details, as sometimes it is these “unimportant” details that can take a toll on your inventory. So, get started on improving the efficiency of your inventory by incorporating these tips. But a word of caution, don’t just limit yourself to these tips. Make sure that you have optimal inventory control by improving even the minutest processes that will have a bearing on how you manage your inventory.